Summary of the Little Engine Ventures Annual General Meeting 2023

On Thursday, July 20, 2023 more than half of our partners gathered with our managers in downtown Lafayette, Indiana for a report on the previous twelve months and our updates on the go-forward plans. We are grateful for the people who have helped us. While our purpose is to help others climb, we have been helped, also. Thank you.

We are focused on helping others climb. This begins with customers, extends to teammates, and includes owners. We are focused on our bull’s eye customers in each of our control companies, and as a long-term care taker of businesses, we pursue best-in-niche, make-to-order service companies with a geographic moat to join our partnership.

I presented our primary challenges of 2022, including indigestion and inflation, and the steps taken to address these challenges. We divested non-core assets, conducted a major restructuring in our seed companies, and adjusted prices. We then reviewed headway in 2023, covering units, revenue and operating income changes for the whole, by operating group and by individual company. Questions began. Will there be dividends? We will not issue dividends to everyone on a prorata basis for the foreseeable future. We take a default reinvestment policy, and have since launch. This serves our purpose. Partners who want cash –for whatever reason– can request redemptions in part or the whole, one-time or on a recurring percentage of their balance process. As for 2023, units are up. Revenue is up more. Operating profit has surged even more.

Side note: while preparing this post I reviewed the “Summary of the Little Engine Ventures Annual General Meeting 2022” post. I have updates to 2022 questions highlighted in that post. First, we are focusing on fewer companies. Second, we now ask managers for specific help introducing us to sellers.

After several questions were addressed, we re-entered the deck and I walked through recent initiatives. Our focus for the last few years has been on improving our core and looking to add one large service company to that core within our existing geography. Thanks to our managers we have completed The LEV Way operating system and have instead built a solid core. As for adding one large service companies within our existing geography –I have gone on numerous dates, even made some proposals, but haven’t gotten us hitched. The result is, we are taking our three most mature companies forward with geographic expansion. More questions flowed.

How did you select these cities? How will you determine whether to perform an acquisition or conduct an organic launch? How much time have you budgeted? What is the competitive analysis look like for each business in each city?

Questions were handled in part or whole then a scheduled break was taken. After the break we covered some governance issues surrounding an addendum that was circulated and a small fee adjustment notice. An advisory committee member spoke to the group about the depth and quality of the valuation work provided each year end, stating that it was full and complete and that Daryl and Mikel are receptive to pointed pushback, which is done, both upward and downward.

We then returned to a few questions from the first session. First, we selected these cities based upon their specific character and their relative character and our probability of establishing a long term foundation in each. There are attributes that pushed us away from some cities and attributes that pulled us toward others. These three target communities are most similar to our present home base and within range of us, such that we can utilize our time effectively. There are some network effects and scale economics that we expect to develop over several years.

We intend to lean into our organic expansion plans first because our top three companies produce very high return on tangible assets. Working out a process to expand these should produce an attractive outlet for reinvestment. However, we are actively pursuing acquisitions within our target zones and have verbal agreements with more than one. Our bingo game is a horizontal or vertical first, then fill the card game, wherein we want to populate our time and cash with existing business lines in new geographies. That is, our plan is to punch out more of what is working (more of our favorite, existing business lines) and add units, revenue and profits such that we can justify a bit more operating management support, so we can help still more people.

We used a map to discuss the service radius of each business line and how they interact with each other and the whole. Solid questions persisted throughout the morning. New managers were mentioned, and long-held managers were celebrated. Partners were encouraged to interact with both. A poignant question was asked about spinning out internal software tools we have built. I love this question and want to get to the point that we can do that. It’s taken longer than I expected to document each of our operations. I am thankful for the role each person has played in helping us make progress. We are still very early innings of a long-term game at Little Engine Ventures. The tracks are laid, and we are at work.

We adjourned for lunch at the restaurant downstairs.

Next year’s meeting will be Thursday, July 18, 2024.

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