KP Unpacked

Startups, Steer or Sink: Welcome to the Brackish Era

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In this special edition of KP Unpacked, Jeff and KP dive into the heart of KP’s viral Sunday Scaries post: Brackish Waters – The Startup Survival Zone.

KP breaks down why traditional lines between VC and PE are blurring — and what it means for how startups should build, fund, and scale in today’s climate. From hybrid capital models to real-world disruption via AI and robotics, this episode is a must-listen for founders, investors, and corporate leaders alike.

You’ll hear:

  • What “brackish waters” really mean for capital strategy
  • Why VC volatility and PE predictability are no longer your only options
  • How firms like General Catalyst and Thrive Capital are changing the game
  • Case studies like Lumina’s new playbook for AI-powered M&A
  • Why this might be the most important episode we’ve ever recorded

💡 Bonus: KP reveals how some of the biggest wins in the next decade will come from founders who know how to steer in murky waters.

👇 Resources Mentioned:

Sounds like you? Join the waitlist at https://kpreddy.co/

Check out one of our Catalyst conversation starters, AEC Needs More High-Agency Thinkers

Hope to see you there!

Speaker 1:

Hey, welcome back to KP Unpacked. My name is Jeff Eccles, I'm the Executive Director of Catalyst here at KP ReadyCo and this is my weekly chance to ask KP Ready. Hey, what were you thinking when you posted that on LinkedIn? Of course I'm joined today by KP Ready. He's the founder and CEO of KP ReadyCo and also the founder of Shadow Ventures. Welcome, KP, Thanks for joining me today. I'm looking forward to unpacking what's actually one of the Sunday Scaries which we can get into. Unpacking what Sunday Scaries are really quickly, but one of the Sunday Scaries that you posted on LinkedIn. So welcome, Glad you're here today.

Speaker 2:

Good to see you posted on LinkedIn.

Speaker 1:

So welcome. Glad you're here today. Good to see you. Um so, sunday Scaries before we get started, that's a particular type of post that you put together every week. It sounds sort of self-explanatory, but what was the inspiration because you started Sunday Scaries? Um what, in December of last year? Is that right? Maybe longer? No, maybe longer Towards the end of last year, I guess.

Speaker 2:

Yeah, actually every week for the last year and a half almost.

Speaker 1:

Okay, yeah, so every week you write the Sunday Scaries. Most people, I think, have an idea of what Sunday Scaries are, but what's your intent behind those particular posts?

Speaker 2:

Yeah, yes, I mean Sunday scaries are the Sunday afternoon when all the things that you know, you try to relax over the weekend and all the things that, um, all those demons waiting outside your door called Monday morning or or or scrap scratching at your door, and you freak out and you're trying to figure out what the week looks like. And if you're a founder, you're trying to question like why am I still doing this? What's the point? If you're a corporate person, you're like why am I still doing this? What's the point? And so Sunday afternoons are a great time to reflect on why am I here, why am I doing this? And then prepare for the week and it's, you know, it's interesting.

Speaker 2:

I mean I think I have like something like 10,000 subscribers to this one little newsletter. It was targeted for founders mostly. So I talk a lot about funding and trends and a lot of that stuff. But I get a lot of feedback from kind of corporate world saying, hey, I love your Sunday Scaries and it's one of our most and we run a few newsletters. It is our most highly engaged newsletter that we publish.

Speaker 1:

Now I guess, ironically, we're going to talk about the latest sunday scaries. The beginning of the title is brackish waters, for anybody that that wants to look for it. What we, what we have been doing on kp unpacked, is talking about different topics, all of which tie back to your latest book, creating the, the Intangible Enterprise. But, as you mentioned, sunday Scaries was really started for founders and that sort of ties directly to an earlier book of yours. What you Know About Startups is Wrong. So not to try to pull apart what we're doing here, but what's the distinction between those two books?

Speaker 2:

before we jump into it, yeah, I think what you know about startups started off as like a journal to my kids. My dad died when I was 15. And as I became an adult I always wondered, like about the decisions he made in his life and all that. So it was kind of my entrepreneurial journey in the form of a journal that a friend of mine who's like this PR personality I had her read it like hey, is this wild or what? And she was like you need to turn this into a book, you need to publish it. So what you know about startups is wrong is as much about my entrepreneurial journey is wrong is, uh, as much about my entrepreneurial journey. Uh, ups and downs. Ups and downs almost died, literally um and um kind of like my reflection upon that.

Speaker 2:

It's also the book that I think my wife most frequently reminds me, um, of my philosophies. She's she's great at the callback. She's like that's funny, like because in your book i's like that's funny, like because in your book I read that that's done. You seem to be doing the opposite of that. So it's one of those things where I actually go back and have to reread it. And now it's out on Audible. Over the last year they, I think they put it out on Audible, but it's like oh, that is what I told everyone they should do and I'm not listening.

Speaker 1:

So you're getting called out at the dinner table. I love that.

Speaker 2:

Yeah, it's like it's weird to quote a book that you should think about.

Speaker 1:

That's great. Remember when you wrote yeah. So obviously Sunday scares have a great tie to what you know about startups is wrong. And then this topic that we're going to unpack today again for startups and people start to understand it as, as I said, creating the Intangible Enterprise.

Speaker 1:

So let me start out, as is our tradition, by reading this. So Sunday Scaries are a little bit longer than your typical LinkedIn post. So I'm just going to read a little bit of this article here and then we can start to unpack from there. So it's titled Brack waters the startup survival zone. The subtitle says startups caught between VC volatility and PE predictability must learn to steer All right. Here it goes.

Speaker 1:

Lately, I have been meeting with a lot of various fund managers venture capital, private equity, private debt, family office, etc. These conversations have been a great learning experience. Why do I have them? Economic environments are ever changing. When founders tell me the goalposts keep changing. Last year, 2 million in ARR was good enough for a series A. Now it's 5 million. My answer is yes. Then they asked me how are pre-seed founders raising millions and they have nothing to show for it? This is also true. This newsletter is the outcome of a one-hour conversation with a founder. Hopefully it gives you some insights to make some decisions, and then you go on to define what brackish waters are. So what are brackish waters? Brackish waters are a mix of freshwater and saltwater, typically found in the estuaries where rivers meet the sea. The salinity levels in brackish water are higher than freshwater, but lower than seawater. This environment is transitional and supports diverse ecosystems as species adapt to varying conditions. So again, last week you wrote about baseball, favorite topic of mine.

Speaker 1:

And this week this reminds me you'll know this place For years and years and years.

Speaker 1:

I used to go down to St Simon's Island just right off the coast of Brunswick, georgia to St Simon's Island, just right off the coast of Brunswick, georgia, and of course you've got the intercoastal that runs through there. But you've also got those low country marshes that are all brackish waters and to me those areas are more interesting and more fun than the beach itself. So the ideas behind this article really spoke to me because of that. But when you talked about brackish waters, obviously the definition is the mix of the waters, right. But you go on and I think this is super interesting. You relate different types of waters or different environments to the different funders, if I can say it that way.

Speaker 1:

So let's start out with the VCs. You say they are saltwater oceans, so why do you say that?

Speaker 2:

I think, predictability, right, like, sometimes, like you're trying to get out to sea and just the wind. You know, you're an AI first company focused on whatever, and that's the way the wind is blowing and you get taken right out to sea, to the other side of wherever you need to go right To the to to the promised land on the other side, right, and did you have to build the right boat? Did you have to be able to steer? Yeah, sure, all those things, but you also got a nice little nudge to go to go there, right, we're in the same token token, that same boat, and you have a headwind, right, and, um, there's just all the variables. Right, you have tides, you have sharks, you have all these things right, um, waves and winds that you cannot predict.

Speaker 2:

And, and it's interesting, um, you know, in startup pitch decks, I always ask for I need one slide. It's the only, you know, in startup pitch decks, I always ask for I need one slide. It's the only slide I ever need, the only slide I ever care about, really, and I call it my perfect storm slide. What are the three to four variables happening in the market, right, that are independent of you? Right, ie the ocean that will create this perfect storm, right? Um, and if you read anything about perfect storms, that's what it is it's a culmination of variables that create a unique condition for a period of time that creates massive waves. Um, who is it? George clooney and brad pitt who in that movie? Where's the math, damon?

Speaker 1:

uh, it was marky mark. What's this was mark mark. I think it's walbert, yeah and george clooney.

Speaker 2:

They're on a boat and it's perfect storm and all that stuff, so google it kids um they survive, no, without a hair out of place um or they didn't or they didn't, don't know, um, so, so I think you know I've always used that, right, and so I think that's the thing with the, with venture world, startup world, you really don't know, right. So it's, it's a constant change, and it's a constant change for for various reasons. Right, what people don't realize. I was talking to a guy today had a $500 million fund, was very successful.

Speaker 2:

The second fund, his big investor shut it down. He was like well, I did good. He was like you didn't outperform the public markets. What's the point? Wow, right, because it was during a period of time where the public markets were crushing it. And so there, his investors were like why would I put cash in something that's illiquid, tumultuous? I can just be over here in the public markets, fully liquid, very limited risk, and I get better returns, so, so why would I bother with your, you know, with where you're at? So I think, um, if you, if you're a founder, you know this, you can have the best of ideas, but it's the external forces that really, you know, really mess with you.

Speaker 1:

Yeah, so the second fund got shut down. What happens to all the founders that were um, that were drawing investment from that fund?

Speaker 2:

Oh no, they never did it. They never did the second fund. Oh, they never, okay they did the first fund, they're like oh, we're good, we're not going to do another one. Even though he outperformed on venture perspective. They're like why would we do another fund? We'll put stuff in the S&P.

Speaker 1:

Sure, yeah, well, it makes total sense. High risk makes total sense, high, high risk, right once you get out to sea, once you get beyond the the, you know it, uh, one of the interesting uh geography features of that area down there off of brunswick, with saint simon's island and jekyll island, is there's a sandbar that goes out about five, five miles. So you've got this really stirred up water as you go out, but then once you get past the sandbar it drops off the you know the face of the earth drops way down and turns to that, that beautiful green water.

Speaker 1:

Once you get out there, that's high risk. You don't know the. I love the idea of the perfect storm.

Speaker 2:

Think about the body language of a deep sea fisherman and what you envision really in something versus somebody, fly fishing.

Speaker 1:

Yeah, absolutely.

Speaker 2:

It's just so different, right, fly fishing. It's like, oh, I got a cigar in my mouth just doing this thing. You know, like I don't fish, so I'm probably doing it all wrong this thing. You know like I don't fish, so I'm probably doing it all wrong. Um, but you know, you think about deep sea and you think about the ocean and you're pulling and you're yanking and it's that's, that's a great, you know, another great visual of like the difference.

Speaker 1:

Yeah, yeah, those, those are uh, those are good visual examples. Okay, the next category that you talk about, or the next type of funder that you talk about, is the PE, the private equity folks, and you relate them to freshwater rivers and lakes.

Speaker 2:

So what's?

Speaker 1:

the analogy there.

Speaker 2:

Yeah, fairly predictable, right, like the flows are generally known. Every once in a while you might have some turbulence in it, but generally speaking highly predictable in it, but generally speaking highly predictable. You predict rainfall, like what are the variables that drive lake levels and river flows is generally rainfall. We generally can predict that that's coming, you know, at some level or form or fashion. So it's just like it's not that there's not tumultuousness that happens, it's just that you kind of see it coming, right. You can kind of see it coming versus. Uh, you know, I'm over here in northern california and they tell you like don't go into the water, like never turn your back on the ocean, it'll get you. They literally have signs, like emergency signs all over. Never turn your back to the ocean, right, because you don't know like a wave could come out of nowhere and just suck you out, right. So you know private equity a little bit more lakes and rivers up more, you know, you know what it looks like, kind of thing.

Speaker 1:

So yeah, Until the government starts using weather radar to control the weather. Yes, and then you don't know.

Speaker 2:

Then you don't know, that's all.

Speaker 1:

It's the government. And finally you talk about brackish waters, which you call the hybrid approach. So what's that all about and where do you see that happening?

Speaker 2:

Because I think that's that's an interesting little overlap there yeah, so I think, if you think about brackish waters, um, it's also where all the nutrients are, it's where all the most interesting things are, right? Um, it's. You know, it's weird. You see, you find sharks that can live in both salt and you know, the habitat is very unique and different, right, and so the stuff that works there is rich in, you know, in nutrient, but a lot of stuff can't survive there.

Speaker 1:

Yeah.

Speaker 2:

It's just, it's a very, it's a very unique species that can survive in the brackish waters, and even more so they thrive right.

Speaker 2:

The habitat that thrives in brackish waters is fairly unique. So I think that's another one of those things and what I've read about brackish like these sharks that can move in and out these species, the vegetation that can live both and out these species, the vegetation, um, that can live both in salt and fresh, right, so think about that. Like, um, it's it's a very unique category of biology that can survive there and I would say that they actually thrive in that environment. However, the analogy back to the business world there's very few that can be there. There's very few that can be there. There's very few that can adapt.

Speaker 2:

And so, with this founder specifically, I told him, like you need to either pick the ocean or you need to pick the river, like you need to pick one. You don't have any unique enough business model. You know your business model is pretty generic in a way. You need to pick one. So in my book I talk about business model innovation. This is a great example of that. You have PE backable businesses and PE businesses and you have VC businesses. These are kind of the two things and you have VC businesses. Right, these are kind of the two things. But when you start looking at the effects of AI and robotics and what it can do. You actually can build highly thriving business in these brackish waters, and the capital markets are starting to notice this. So what I'll tell you is, like I don't know how many podcasts we have left in the year. I'm assuming like 26, about.

Speaker 2:

Yeah, we're about mid-year. So yeah, without knowing the future of what we're going to talk about, without anything else, this might be the most important podcast that anyone should ever listen to. Okay, it is the trillion dollar podcast, so to speak. Right. This episode this episode, this, this episode and what I would say is listen to it.

Speaker 2:

Listen to it carefully. I can't explain all the things. If you want to hit me up on catalyst, we can talk about it more. But the way things are moving, you have a convergence. So what's happening into these brackish waters? They're getting bigger and bigger. Like you talked about St Simon's Island, right, how big a space is that those brackish waters? Compared to oceans and rivers? Tiny, it's a very unique sliver right. So what's happening with capital right is the private equity guys and gals are starting to play in brackish waters.

Speaker 1:

The VCs are starting to play in brackish waters.

Speaker 2:

The VCs are starting to play in brackish waters, so the capital that's moving and converging in this brackish water is actually starting to be a larger pool of capital than we ever have seen in our lifetimes and that we will continue to see. Case in point General Catalyst, their creation fund. That is all about brackish waters. That's a few billion Thrive Capital. Josh Kushner's firm announced this like hybrid fund right, which is playing in brackish waters. Andreessen Horowitz has one. They're announcing more. So you're seeing the majority of capital allocation that would normally be reserved for either PE or VC coming into this brackish pool.

Speaker 2:

The PE guys are running around saying value creation and I'll tell you, most PE firms that talk about value creation, they really mean value extraction, ie the way PE makes money. They have a five-year sprint. They say, okay, let's reduce some expenses, let's do this, let's put in better accounting systems. That's quote-unquote value creation, ie let's grow organically, reduce expenses and then sell it to the next guy. These guys have underperformed. So what they're realizing is that playbook is not the right playbook and with AI and robotics we have a different value creation model, which is what I spoke at this private equity conference a few weeks ago Is private equity can no longer just be this financial engineering of a business and then sell it off to the next guy.

Speaker 2:

Things are, things have changed, right. So that business has changed. Vc has changed. So this Brackett Waters is becoming bigger because the pool of capital is there. And because of that pool of capital. It's not that the ideas are chasing capital, it's just that ideas that a year ago if you would have told a VC or a PE here's a good idea, they would have said no. And the reason they would have said no is it didn't fit into the buckets we're playing in these two oh, it's not an ocean play, by the way, there's a term called carried interest in venture capital, which is like if we deploy $100 million and we turn it into 300 million, you take away the principal, so you're left with a $200 million profit.

Speaker 2:

We take 20% of that. That's like our commission on this called carried interest. The funny thing about this analogy I'm talking about the term carried interest actually came from back in the day. It's what ship captains charged If they took goods across the ocean to the new world or wherever else. If they got it there successfully, they took a portion of it and it was for carrying it, so that was called carried interest. So that's why all those VCs are like pirates, right, but that's where it actually comes from. Funny enough, the callback to the analogy right. So now you see this capital flowing in in a big way and it's pushing business models that both PE and VC would have never funded before and are funding now.

Speaker 2:

So I'll give you a really simple example. I talked about it today on LinkedIn. We invested in a company called Lumina. Lumina does EV and at some point in the future I'm not allowed to say fully autonomous earth-moving equipment, excavators, bulldozers, blah, blah, blah all of it, right, ev based. The goal is fully autonomous and so super innovative. Ahmed's fantastic founder, I think he's like 24. So if you want to feel bad about yourself senior moment at 24, when you're hanging out at Lollapalooza, this guy is like building fully autonomous bulldozers, right? I'm just saying maybe we spent too much time at Lollapalooza maybe we did.

Speaker 2:

I don't think so, but maybe we did maybe we're focused on the wrong things when we're 24.

Speaker 1:

I don't know it.

Speaker 2:

Ahmed's a fantastic guy, just a brilliant guy, and so one. You can start doing work in the middle of the night. If you're below noise ordinances, you don't have to have as many people. Staffing Sounds pretty innovative, right? So two years ago, as a VC, you would look at it and say, fantastic, go to market, we're going to compete with John Deere and Caterpillar and we're going to be the quote unquote Tesla of earth moving equipment, and he probably would have raised money for that model too. But here's what he's doing instead. He's buying grading companies. So he's not I'm going to go sell a grading company, I'm going to go buy the grading company.

Speaker 2:

I'm going to go be in the grading business and the reason being, if you look at the market size of selling equipment versus the value capture of taking an old line grading business that maybe does 10% to the bottom line. It has capacity issues because you have to have people and we both know our industry struggles with people right now. So if I can double the revenue and double the gross margins through a technology, the value is better laid out in owning the company than selling to the industry, right. And you don't deal with cultural barriers. I don't know about your grading equipment. I don't know about all these batteries. Caterpillars treated me well, Right, you don't have to deal with any of that.

Speaker 2:

So this is the new phase of businesses being built in this brackish water. So then you say, well, wow, that's interesting. Wow, that's interesting. What's your path to liquidity? So think about this you start a tech company. First year you do $200,000 in recurring. Next year you do a million. We know all these companies. Maybe they get stuck. What is their path to an IPO? Path to an IPO is doing $200,000, $300,000, $400, 400 million a year in revenue high margin, right? Well, do I think that Ahmed and crew can go buy enough grading contractors to get to 500 million in revenue. Kind of a no brainer. Yeah, With the deployment of his innovation, can he demonstrate gross margins that look like software gross margins? Yep, check the box. So now you're talking a path and, by the way, this is not financial advice and I'm not making claims about our investment in Lumina. Disclaimer disclaimer. Don't want to go to SEC jail, However-.

Speaker 1:

I think I'm going to probably have to record an outro for this.

Speaker 2:

His path to an IPO because of getting through acquisition is very different. It's not let me sell one more bulldozer. He's like I'm going to go buy the market and then transform it into a company that is institutional grade, the type of company that you would want in your 401k, right? So now you're seeing that. So this is the trend, right, and check out my friend, Mark Bargova. If you Google him with General Catalyst, he's spoken about this a lot lately. Mark's out there buying.

Speaker 2:

Okay, we're going to invest in a company that is AI for accounting Fantastic, Accountants are culturally resistant to it all. Sure, so we're going to go buy an accounting company. Can I get to five hundred million dollars a year in revenue by buying a bunch of accounting companies? Absolutely. Can I use AI to drive a significant margin change? Margin change Absolutely, Right.

Speaker 2:

So this is the brackish waters. Now, the problem with brackish waters is if you're used to being in that tumultuous world or you're used to like laying out on the you know, fly fishing, right, this world is a little bit different. It's a little uncomfortable, right, Because you're just so used to it, right? So guys like me are sitting here going okay, I understand the oceans, right, I understand that world. Oh, now I need to understand debt and private debt and I need to, like, learn private equity words. I need to understand private equity finance.

Speaker 2:

Now the private equity guys are coming in and going. I mean, you guys are like artists, you just decide who you're going to back. You don't have any fundamentals and I'm like that's not true. It's different work, right, it's different work. And so now you're seeing this survival of the fittest in venture and PE, where the PE folks that are adapting to brackish waters will make trillions and the VCs that adapt to brackish waters, like M&A. Think about that. How often do you talk about startups with no revenue, like pre-revenue startups, talking about acquiring other companies? In fact, most VCs would shut you down. That is not a strategy. Next PE gets that right. So the people that are adapting if I'm going to be that shark that hangs out in the brackish waters, which is what I most identify with- A shark.

Speaker 2:

You know, I got to adapt man Right and the thing is like that's what's happening and that's why, when I say this is probably the most important episode of our podcast that everyone should listen to If you care about making money, if you don't care about money making and you're a socialist, apparently you're getting a new mayor in New York. Go hang out there. In my world of audience that is capitalists and are startups and people trying to make a living, this is important. If you're a corporation now all of a sudden and you think it's okay, we're PE backed, right. The thing with PE backed PE backed likes to put capital into predictability.

Speaker 2:

If you say, oh, of the hundred million we're using to buy your company, we want to carve out 5 million to do R&D and take some risks to build some kind of AI tool, to build a next generation structural engineering firm, pe is like nope, can't do it. Right. If you go to a VC and say, hey, I want $5 million to build an AI technology, they're like, sure, oh, but I want to go buy structural engineering firms. Most of them will say no, right. So that's the dynamic people, and I think Ahmed and Lumina are one of the examples in our space. But let's take a conversation to our friends at Cove Tool. I don't know if you heard about Cove Tool.

Speaker 1:

Yep.

Speaker 2:

Right, I had a call with Sandeep the other day.

Speaker 1:

She may have me on her podcast.

Speaker 2:

She may have me on her podcast, maybe not, after listening to this, I don't know. Oh, if this is the most important episode, that we'll ever record we need to offend at least two or three potential sponsors.

Speaker 1:

Well, John Deere's off the list.

Speaker 2:

Caterpillar's off. Maybe that's what we need in the show notes. Here's all the sponsors we offended this week.

Speaker 1:

You know, we were joking about it last time. Right, it's product placement, that's what we're doing, and I actually I was watching a video the other day it was something you know, somebody talking about how to use a certain AI tool and they had a sponsor. I'm not going to say the show or the sponsor, but they had a sponsor and they, they, they started their promo by saying such and such sucks. And here's why, of course, it grabs your attention.

Speaker 1:

I thought I was like you know, it double takes, like what? And then I realized what they were doing there. But you know, we're, we're not far off from that.

Speaker 2:

Yeah, yeah. So so you took it like what cove tools doing? Right? They built this product, a software product, mostly for architects and some engineers to do like carbon management, right? So carbon accounting so, so to speak for for design of buildings. Um, what they realized is that market got really small on them. Right, it wasn't a big market. There was not a path to um to be a unicorn, right?

Speaker 2:

and they raised significant money and they just saw that, like, there's these headlines, sos. So what did they decide to do? They decided to take some of their capital that was left, build an AI architecture platform and then they started an architecture firm. So they're not selling it to architects, right? They're competing with their clients, right? No, they are.

Speaker 1:

Essentially, I mean, they're doing design, build, develop.

Speaker 2:

Yeah, yeah. So they're competing with their clients, right. So why would they do that? Because it makes sense, right? We've had several companies.

Speaker 2:

I think I've told you I don't think I'll ever fund a startup focused on the architectural world ever again. It's just impossible to make. I mean, you can build a nice business. You are not building a unicorn, you're not taking it public and we've had our expensive learnings from that and we've seen other people with expensive learnings, not just like, hey, we're going to be different.

Speaker 2:

Now the interesting thing is I know two or three private equity firms that have called me and said hey, we're buying architecture firms, we want to bolt you in. What startups do you have? Who do you have in your advisory business that we could bolt in and change the dynamics, the economics of an architecture firm? So I think why this pod is so important is I think it's really the first time where there's equal relevancy if you're a founder, to pay attention and understand what's going on, and if you're a corporate, like all of our AEC investors and partners and all that are more in the private equity world. This is probably the first podcast that we've done where it really is that important to both, to our two big segments of our, of our listenership.

Speaker 1:

Yeah, well, let's go back to an example you used a few minutes ago and we can. We can morph it because it's I think it's easily translatable. But you're talking about market general catalyst, basically buying the accounting firms and building the AI tool, right? So you've got a VC that's acting on both ends, essentially right? Hey, we're going to buy up the accounting firms, that's PE, but we're going to have the AI first tool, that's VC. So you get that Accounting firm is not that different than an architecture firm Sorry, architecture friends out there that think that we're all that unique, but it's not. It's professional services. So you could use the same sort of analogy, which I think is sort of what you're hinting at here, with PEs that are talking about architecture firms and then bolting on some of the investments. What is? And we're making this distinction between PE and VC? Right, they are two different vehicles.

Speaker 2:

Yeah.

Speaker 1:

Is there a unique combination like is is there a pvce right that that somehow that these morph together?

Speaker 2:

yeah, I mean, I don't think you know someone. I was talking to a big allocator the other day. They're like, hey, you should coin the term brackish, right, like it's brackish capital. So I coined it. Now I own it. Brackishvcme get all the domains guys. So, um, but no, I think what you're just you're not seeing a name being put to it yet. Yeah, um, because it is early inning, but it's early innings with billions of dollars flowing in, absolutely flowing, and the thing that's cool about Lumina is think about that. For construction, there's another venture firm I was talking to. They invest in a robotics company that does drywall. They're reformulating it and they're going to buy drywall companies. You and I know to go aggregate a bunch of drywall. What is going on in the drywall business that a robot can solve?

Speaker 1:

Labor.

Speaker 2:

Labor. Yeah, we know there's plenty of work and, of course, there's no new labor coming into the market, right, it's all labor. So you go, fund a drywall robot company and you start buying drywall companies. Next thing you know, you have a billion dollars in revenue, operating at 30, 40% gross margins, no carrying expense. To have a bunch of people on payroll probably had the ability to serve markets that you didn't, because you just put a bunch of robots into a truck and drive it 500 miles, drop them in place, right. So you start thinking about these models and so you're going to see traditional businesses what PE likes to call the boring businesses and these boring businesses are going to have financial outcomes that look a lot like tech High growth, high margin, less people dependent right. Revenue per head multiples, which I talk about in my book as well right, like how is it that Google has a revenue multiple, I think, of like one and a half million per head?

Speaker 2:

Walmart's is 150,000 or so per head. Don't quote me. Look in my book or look at it on the internet. You know who else has an equal revenue per head multiple to Walmart? You know who else has an equal revenue per head multiple to Walmart? No, tell me AECOM, aecom. Aecom and Walmart had the same revenue per head multiple Last I checked. Think about that.

Speaker 1:

So how's?

Speaker 2:

AECOM doing Very different businesses right, very different businesses. Walmart, you expect it. How is it that AECOM has that? That tells me they have a lot less. You know, if it's a, c, oh m right, it's architectures engineers, contractors and then operations managers. It's all operations managers. It's a bunch of people chasing people down for timesheets and and all the other nonsense not people doing productive work.

Speaker 1:

Right, well, yeah, I mean, the production work is all based on on their, their multipliers, their hourly and their multipliers and it's not gonna change. That's not significantly changed in a hundred years.

Speaker 2:

But think about how many accountants they probably have and project managers that are not architects, engineers or contractors, you know. Think about all the non-technical talent that's running around doing paperwork. Get rid of all of them. You can get rid of all of them. You don't need them. So I think what's interesting about this shift, especially with the M&A dynamic then the question comes like a lot of my clients and investors will come to me and say KP, we're a 2,000-person engineering firm. We need to disrupt ourselves before someone disrupts us. And I'm kind of saying it might be too late. Because the difference between these models of acquisitions. I didn't spend the last 20 years telling my firm that we're a family and we're in this together and we do great work together. And, of course, ai is going to. You know AI is going to give you superpowers. It doesn't mean that you're going to have your. You know your job is at risk. None of this leadership can come in and say, hey, ai is taking over everything. We're going to cut half the staff. They won't do it Right now.

Speaker 2:

Someone that's acquiring the company comes in has very little emotional attachment to any of this can absolutely come in like, hey, you're gone, right and you're seeing it through big tech right now. Right, microsoft laid off 9,000 people. The funniest thing about their layoff I heard a rumor that's pretty interesting is do you know how they pick people to lay off people that were entering their vesting period on their stock? Oh God, put them before they best. I was like, uh, if that's not true, it's a great, like it's a great move. If it's, it's a great business movie, even if it's not true.

Speaker 1:

Sure. So what's your? So, what's your play? Right You're, you're looking at the market right now and we've got to doing. Are you creating the technology? And then I mean, are you using the same, the same playbook? Are you creating some sort of technology that's going to drive efficiency in the firm and then going out and acquiring the firms implementing that and flipping it that way?

Speaker 2:

Yeah, I think there. I think there's a couple pretty interesting playbooks that I see that are already happening. Right, they're already happening. I've met with these firms. I've seen how they've allocated capital. I think the play here is we need to get rid of the word innovation. We're now in the world of disruption.

Speaker 2:

It's not I'm going to sell you a tool that helps you with your construction administration. No, no one cares. In fact, that tool, based on a few podcasts ago, I can recreate it in hours, maybe minutes. In fact, I have an entire team cloning all the software that's out there, and you know what we're going to do Probably Q4, I'm going to give it away for free, just have it. It's a commodity, everybody should. It's out there, and you know what we're going to do Probably Q4, I'm gonna give it away for free, just have it. It's a commodity.

Speaker 2:

Everybody should see internet. It's free, and you know our industry, that now they like that price tag of free. So so there's trends like that. So I think, if you're you know we're seeing with contractors right now. This is an interesting trend. Very, very quietly, contractors are buying architecture and engineering firms and they're now starting to deliver true design build. Part of the reason is, um, if you think about like capital light businesses versus capital heavy businesses, sure, contractors are a little bit more like capital heavy right, they have a lot risks and bit more like capital heavy right, they have a lot of risks and the balance sheet and all that To start an architecture firm. Start one tomorrow, right, set up a Wix website and you're good to go, right, you have clients and do work and it's not very capital intense, right, you operate out of your house. A little bit harder to operate a general contractor out of your house.

Speaker 1:

I'm sure it's done. I'm sure it's done.

Speaker 2:

But so you think about that. If you're a general contractor and the idea of buying a 300 person architecture firm was just really daunting, right, like why would I do that? Now they're saying, like, let me go buy a 10-person firm, apply AI and in fact shift Like what is a deliverable. So they now have the design team saying, just get us the permit, it's not for construction, just draw enough to get us the permits and then our contractor team is going to actually finish the drawings and there will be no RFIs because it's all in-house. Right.

Speaker 2:

It's all in-house yeah, so that's happening.

Speaker 1:

I mean we already see cases where that's what a lot of the GCs are doing anyway, that they're rebuilding the Revit model or the BIM model, right.

Speaker 2:

And so it's accelerating because GCs are saying oh, I don't have to go buy 200 people to have 200 people of design capacity, I can hire 20, apply AI, and now I have the capacity of 200 architects or 200 engineers. And if you look at two other pinch points to construction, right is estimating right. That's always a bottleneck. You always have a few people in this model, you don't have to worry about it. And bonding, you don't have to worry. It's just that's where the construction is going. So the model is already getting, the business is already getting disrupted internally right Now.

Speaker 2:

I think that's where startups have to start thinking differently. It's not about selling the tools to the architect, the tools to the engineer, the tools to the contractor. You have to start making different decisions. And I mean don't share it now, Like you don't have to tell them right now, you can just keep. Do what Cove Tool did.

Speaker 2:

I don't know if that was their master plan, I don't think it was. But so what right? You know, give away your software, um to architects and then go buy them. Like you know, I don't know, yeah, so I think the difference is um, even if you're a founder that had that idea, there was no capital for it. You go to a VC and say, oh, I want to raise a couple million bucks and then I'm going to go buy companies. No, thank you. Went to a private equity firm and said I want to go buy companies, but I need some risk capital to build some technology. I'm going to lose money for the first year. No, thank you, we're not in the business of losing money. So I think people really need to rethink and reframe how they think about startups. And then on the corporate side, I got to tell you like coming for you, you know absolutely, and thus your brackish waters.

Speaker 1:

Yeah yeah, Interesting article Again. If you somehow miss this at the beginning. I say that all the time. It's like who starts a podcast not from the beginning, and what does that say about you?

Speaker 2:

Maybe you fell asleep.

Speaker 1:

Maybe they did?

Speaker 2:

KP said this is the most important podcast you should ever listen to, and then you fell asleep.

Speaker 1:

They fell into the water. They're eaten by a shark in brackish waters. We've been unpacking. This is a little bit unusual.

Speaker 1:

We don't usually unpack KP's Sunday scaries, although you can go to LinkedIn. You should be following KP on LinkedIn. Just go find KP letter K letter P ready R-E-D-D-Y. Follow him on LinkedIn. Kp letter K letter P ready R-E-D-D-Y. Follow him on LinkedIn and every Sunday you will see him post his Sunday Scaries. Now you'll also see that on our sub stack. You'll see it over in our community called Catalyst, and so there are different places to find and to respond to I'll say KP's Sunday Scaries, but we decided this week to unpack this Sunday Scaries instead of one of his.

Speaker 1:

I don't know what normal LinkedIn posts. Is that what we call them? It's titled Brackish Waters, the Startup Survival Zone. Brackish waters, the startup survival zone. Startups caught between VC volatility and PE predictability must learn to steer and, as KP said, this this is, I mean what, what he's talking about here, and the examples that that we've been sort of uh kicking around the yard, so to speak, are very, very different examples. It's, this is different stuff, and you know, when you shared the example of Mark, a general catalyst, I mean anybody if you miss that, you should go back and listen to what KP was just saying, because, even though, even though you, you know you said that Mark's focus is accounting firms, you could take a number two pencil eraser and erase that and pencil in architecture firm, engineering firm, physician practice law firm.

Speaker 2:

They're doing law firms. They're doing law firms. One of their companies just bought a big law firm in the UK. They're doing homeowners associations, they're aggregating those. So, no, I think it's.

Speaker 2:

Look, I think it's a very different time. I think we've talked about my move early this year to move to be closer to Silicon Valley. My ambition is a certain way, I'm wired a certain way, um, but I really think the next 10 years it's going to be different and I think if people don't realize how different it's going to be, um, I think they're just, they're just very mistaken about what's going on in the world right now. Um, it's, it's just very you can't Like. It's one thing to talk about change, but when you have change with the momentum of capital, I have three, four people calling me every day saying hey, kp, I heard you're the construction guy.

Speaker 2:

I want to go buy a painting contractor. I had a guy call me the other day $200 million. You're a commercial landscape business, kp, what can we do? We want to buy more. It's hard to find people to drive mowers. I'm like well, we can fly a drone, we can figure out the landscape, we can deploy the Husqvarna. There's like Roombas, but they're lawnmowers right, we can deploy those. We should probably optimize the landscape to make it robot friendly. Let's not let the landscape architect get too cute about. Like the design, so you know. So like the room, by getting stuck under the sofa, no, thank you. Like we got to make sure and they're just like oh my God, this is amazing, like this is insane. I'm like, yeah, very doable, absolutely doable. So so, very doable, absolutely doable. So I think you take robotics and you take AI, and I can't stress enough. I mean, listen to this podcast, re-listen to it. I'm sure the team will drop in some notes and stuff.

Speaker 2:

But once again, I think we had an episode a few weeks ago about vibe coding. I'm telling you the stuff I talked about. I've had people hit me up and they're like I just cloned XYZ company that we all know and I showed it to my boss and we're going to save a million dollars a year, Like over, like a week, a week of this right Now is all this vibe coding stuff little bit of hype, yes, but wherever there's hype there is a kernel of facts and truth and actualization that will happen right and it's just moving so fast. I mean, I think I work more hours saturday and sunday than I work on any weekday because, you go down the rabbit hole, right?

Speaker 2:

I'm talking to my CTO friends and they're like dude, did you see Grok 4? Which, by the way, if you guys don't know about Grok 4 and Grok 4 Heavy literally game changer there are people that are creating. You know, I was joking around with someone. I was like, okay, you're a big lord of the rings fan, right, you can load lord of the rings into an ai and say create me a generic version of lord of the rings but in a video game format and publish it to be sold. That's like a four-hour exercise, dude, it's four-hour exercise. So now you know you think about. I always joke around, like I was like are we going to turn into canal street in the us? It's like you know you can either play madden nfl or fat in nfl, right?

Speaker 1:

so we'll. We'll have to do another episode on the impact of that. Yeah right, do you want to play madden? Do you want to play Fadden? What does it all mean? In the marketplace, certainly, but to users and brands and things like that, I think that might be interesting to look.

Speaker 2:

I think, if you have enough of a strong brand which also I write about in my book one of the number one characteristics of an intangible organization is significant brand appeal. Right, because you can't get. You know, no one's going to play Fadden. Right, nobody's playing PIPA, it's going to be PIPA Like. You know what I mean? It's just, that's just how it is Right. So I think all all these variables in concert become very meaningful to this AI driven future that we're now experiencing.

Speaker 1:

Sure, yeah Well, check it out Sunday Scaries, either on the KP ReadyCo sub stack or in Catalyst, which is our community, or find it on LinkedIn.

Speaker 1:

Usually, kp and I come here every week to unpack one of his LinkedIn posts. We're going to say go to LinkedIn and find the Sunday Scaries, but there are other places to find it as well and we'll be back again next week for another episode of KP Unpacked Again. As KP mentioned, our team, our production team, will go through and drop links to anything that we talked about that deserves a link here in the show notes and follow KP on LinkedIn. Go to kpreadyco, put your name on the wait list to join Catalyst and you have direct access, not only to all of these things, to other people who are focused on innovation in the built environment, without silos. I think that's an important distinction about Catalyst and also easier access to KP himself. In fact, tomorrow he and I as we're recording this, which will be meaningless to you in the future, but tomorrow KP and I are going to host, or I'm going to host with KP and ask me anything, so you can join and ask KP anything that you want to ask.

Speaker 1:

You can play Stump KP if you'd like.

Speaker 2:

By the way, jeff, one of the things we're going to start doing in Catalyst because we talk about all this stuff Someone made the mistake of letting me hire software people, and so we're going to start dropping demos and tools and things only for Catalyst members to tinker with some of the things that we're building before we put them out to market, or sometimes just as an example, like hey, did you know you could do this? Right, because I think we're all done talking about the theory of vibe coding. I think we have a big announcement coming out at some point soon, but I think what I'm learning is people are done listening to people on stage, listening to webinars, listening to podcasts, all this stuff. I think everybody's ready to roll up their you know, roll up their sleeves and try things and kind of get dirty. So that's the new tagline Join Catalyst, come get dirty with KP. No, we're not going with that one, that's the sound of the legal department calling.

Speaker 2:

Okay, come get dirty with Jeff. How about that one? Is that a good one?

Speaker 1:

Also the legal department calling.

Speaker 2:

Let's all get dirty together. How about that?

Speaker 1:

Yeah, we could do that one probably. And you just said that people don't listen to podcasts anymore. Don't want to listen to podcasts anymore. It seems like a problem as well.

Speaker 2:

There's just so many of them. Well there's so many of them.

Speaker 1:

If this is the most important episode, I guess they can stop now. Yep, all right, you heard it there.

Speaker 2:

All right, don't come back and listen to our next episode. Get to work, everyone, jeez.

Speaker 1:

All right, Thanks for listening everybody. Again. Brackish Waters, the Startup Survival Zone Check it out, especially on LinkedIn. Follow KP and we'll be back next week with another episode of KP Unpacked. But maybe you're tired of listening to podcasts and you won't listen to it. I don't know. At least you listened to this one, See.