The Operating Advantage: Why Mid-Sized Businesses Need More Than Just Capital

Tracy Britt Cool, co-founder of Kanbrick and former Berkshire Hathaway deputy, explains that the most durable competitive advantage in mid-market investing is not financial engineering. It is the intentional use of an operating system. While traditional private equity relies on the buy-low, sell-high treadmill, Cool argues that true value comes from long-term cultural alignment and operational rigor. This shift from transactional ownership to partnership-based building creates a compounding effect that competitors struggle to replicate. For operators and investors, this episode provides a blueprint for why investing in culture and talent is the only way to build lasting moats in a market obsessed with quick exits.

The Hidden Cost of Fast Solutions

Most investors enter a new acquisition with a 90-day plan, eager to show immediate progress. Cool warns that this approach is often a trap. By arriving with answers rather than questions, investors miss the nuance of the existing culture and the underlying drivers of the business.

The immediate benefit of a 90-day plan is a feeling of control, but the downstream effect is often a misalignment between the new owners and the legacy team. As Cool notes, the work of turning around a stagnant business, such as her experience at Pampered Chef, is much harder than a spreadsheet model suggests.

> "Let's take margins from 10% to 14%. That's one click in my spreadsheet; in reality in a business, that takes a lot more work to do. There's a lot of missteps or mistakes and learnings along the way to get there."
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> -- Tracy Britt Cool

When you force a top-down strategy, you ignore the reality that the answer is usually in the building. The people already there know what is broken; they just have not been empowered or incentivized to fix it.

Where Immediate Pain Creates Lasting Moats

The most effective way to build a competitive advantage is to focus on the three to four things that matter. In the case of JM Test Systems, the team identified turnaround time as the critical KPI. Before their involvement, the company lacked the visibility to track this metric even at the branch level, let alone the individual level.

The system responds to this focus by shifting incentives. By aligning employee bonuses with these specific KPIs, the company turned frontline workers into active participants in the business success. This creates a feedback loop: employees see the benefit of their work, they become more engaged, and the company performance improves. This is a delayed payoff, as it requires months of groundwork to implement dashboards and cultural change, but it creates a separation from competitors who are still managing by intuition rather than data.

The 15-Year Horizon vs. The 3-Year Treadmill

The traditional private equity model often forces an exit prematurely, just as a business begins to hit its stride. Cool philosophy at Kanbrick is to prioritize the 15-year horizon. This structure self-selects for investors who are comfortable with long-term compounding rather than short-term liquidity.

> "Too many firms exit businesses too soon. When you have a great business that's compounding at 20% plus a year, if you'd rather continue to hold that and compound it then try to go find a business you know less well than has more risk that you have to go invest in."
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> -- Tracy Britt Cool

This strategy creates a structural advantage: management teams are empowered to build for decades, not for a quick flip. This focus on long-term health over short-term financial engineering allows companies to reinvest in their core channel and brand, which are the exact activities that competitors often cut to boost quarterly earnings.

Key Action Items

• Audit your Mission Critical roles: Identify the 15-20 roles that truly drive your business value. Over the next quarter, evaluate whether you have the right people in those seats or if you need to build a more rigorous hiring process based on scorecard-driven outcomes.
• Shift from Post and Pray to Proactive Sourcing: Stop relying on reactive job postings. Invest time in building relationships with high-quality talent who are currently employed elsewhere. This is a long-term investment that pays off in 12-18 months when you need to fill a critical vacancy.
• Implement Listen and Learn phases: Before imposing a new strategy, spend the first 30-60 days of any new project or leadership role asking questions. This builds the trust necessary to co-create a plan that the team will actually own.
• Align Incentives with KPIs: Identify your most critical business driver, such as turnaround time or customer acquisition cost, and tie a portion of team compensation to that metric. This creates an immediate shift in how employees prioritize their daily tasks.
• Prioritize Cultural Fit over Industry Experience: When hiring, do not over-index on industry-specific knowledge. Cool experience shows that a mismatch in culture and values is a more significant failure point than a lack of specific sector expertise. This pays off in long-term retention and stability.
• Build a Community of Peers: You do not need to be an investor to build a network. Start a small cohort of peers to share best practices. Over 12-18 months, this will become a source of non-obvious insights and potential partnership opportunities.