April 1, 2021 Dear Partners, We have long admired shareholder

April 1, 2021

Dear Partners,

We have long admired shareholder letters from respected investors and leaders like Warren Buffett,

Jamie Dimon, and Jeff Bezos. While we can’t match their leadership or insights, we can at least embrace

the same medium. We launched Kanbrick one year ago on April 1, 2020, and this is our inaugural letter,

in which we’ll plan to discuss our results, learnings, and future goals. For competitive and regulatory

reasons, we won’t cover specific investment performance or ideas.

As we were planning to launch Kanbrick early last year, we had no idea what 2020 had in store. COVID-

19 has been devastating, and our thoughts are with the countless people who lost loved ones or have

been impacted by the virus and the ensuing economic crisis. Yet 2020 was also a year of inspiration --

during some of these toughest moments, we saw people put others first and persevere.

At Thirty-One Gifts, the business we acquired in July 2020, our team members and consultants inspired

us daily in countless ways — from becoming at-home teachers to ensuring our distribution center

continued to deliver to finding new opportunities to help customers. Despite the challenges, the

ingenuity, compassion, and progress shown this year make us optimistic and confident about the future.

It also makes us grateful, and we thank our team and the many others who have made significant

personal and professional sacrifices and endured countless challenges over the course of this

unprecedented year.

What We’re Building

Kanbrick’s purpose is to empower people and organizations to reach their full potential. Our goal is to

compound long-term intrinsic value by buying, building, and growing great businesses. The name

Kanbrick is a nod to our shared experience growing up in Kansas and our belief that great things are built

“brick by brick” — day by day, little by little, through hard work, discipline, and integrity. This is in our

DNA, and we lived this every day growing up and working in our family businesses – farming for Tracy

and cabinetry for Brian.

Again and again over the years, we have seen a special kind of business owner who is looking for a long-

term home for their company — a partnership that would not only preserve, but also enrich their

legacy. Core to our approach is our hands-on experience building companies as CEO (Tracy) and CFO

(Brian). Leading a company is very different than sitting in a board room, and we know firsthand the joys

(and challenges) of running a business. Great companies are not built in spreadsheets, and we create

value through building enduring companies vs. financial wizardry and loads of debt. We built Kanbrick to

offer an alternative to traditional private equity through a combination of our:

- Long Time Horizon: Great businesses are rare, and we think it makes sense to hold and build

great businesses for the long-term vs. selling them every 3-4 years. We empower our teams to

think about building an enduring business for decades, not quarters.

- Operating Experience: As noted above, we are both investors and operators with hands-on

experience building companies. Some things can only be learned through experience, and we

believe our experience as operators makes us better investors and vice versa.

- Focus on People and Culture: We have lived in a special culture and are guided by our purpose

of empowering people and organizations to reach their full potential. We believe in doing the

simple things like keeping our word, living our core values, and working hard as a team. At

Kanbrick, we act like the partner we would have wanted for our family businesses.

While building a great business takes years, selling it only happens once. Our best advice to owners may

be counterintuitive – continue to hold your business as long as it is right for your family. Selling will not

make you wealthier, but it will shift the form of your wealth, perhaps enabling you to accomplish other

goals, like diversifying your assets, finding a partner for growth, or preparing for succession.

Unfortunately, many of the business owners we know well have had regrets after selling their

companies to a strategic or private equity firm. We want to be the home of choice for family- and

founder-owned businesses that have the following characteristics:

- Industry: Consumer, Business Services, and Manufacturing / Distribution

- Size: Up to $50M of EBIT

- Location: Headquartered in North America

If you are thinking through this decision, we would welcome the opportunity to confidentially discuss

your business and the different options to find the right decision for you, your family, and your business.

Year in Review

We launched Kanbrick a year ago, just as COVID was spiking for the first time and transforming our lives.

This was undoubtedly a challenging time to launch, but we think in decades, not quarters, and we are

proud of all that we accomplished to build our foundation. We are thankful to our families, team,

friends, and countless partners for their support over the last year.

We believe everything starts with team and having the right people in the right roles. We have been

humbled by the interest in joining Kanbrick. Our culture is purpose-driven, entrepreneurial and

meritocratic, with an emphasis on empowerment and accountability. We act like owners, focus on

getting better every day, live with integrity, and win together. We are actively hiring for our Kanbrick

Business System (KBS) team to oversee the implementation of our value-creating playbook across our

businesses. This is an amazing opportunity to have an immediate impact, learn and grow, and work in a

critical role. If you have interest in working with us, please reach out via our website

Our long-term approach, experience as investors and operators, and track record working with

exceptionally respected companies continues to resonate with business owners. The combination of

these three factors is unique – we think all good strategies need to be differentiated, hard to replicate,

and create value – and we are very focused on building the best long-term partnership for companies.

We are especially excited to have partnered with Thirty-One Gifts and its Founder Cindy Monroe in July

2020. Thirty-One Gifts is a quintessential story of American entrepreneurialism in action: Cindy launched

the business from her home 17 years ago and bootstrapped the company with incredible energy and

limited initial capital. In addition to selling bags, storage products, and accessories that customers love,

Thirty-One has a wonderful purpose, strong brand and history, and amazing group of independent

consultants. Our goal is to strengthen the sales field, brand, and product so that Thirty-One consultants

can continue to grow their businesses, especially digitally. The team accomplished a great deal since our

investment, and we look forward to continuing to build the business for years to come.

When we were serving as CEO and CFO, we were constantly seeking to learn and grow, yet felt there

was a dearth of easily accessible resources for mid-sized companies. We want to change that at Kanbrick

by building a community of owners, operators, and investors through content, programs, and events.

So, in early 2021, we launched a new program called Build with Kanbrick

that is designed to drive value

in participating companies, compound our learnings, and build our reputation among mid-size

companies. The 3-month program focuses on helping CEOs, founders, and owners tackle some of their

biggest challenges and opportunities. Many start-ups have access to accelerator programs, but there is

little that supports more established businesses. We were excited to consider dozens of strong

applications for 5 spots in our first spring 2021 cohort, which is currently underway. If you’d like learn

more about future cohorts, please visit our website at

www.kanbrick.com.

Thoughts and Learnings

One of our core values is “get better every day.” We believe reflection is vital to continuous

improvement and wanted to share some key learnings and reflections across several investing and

operating topics. These insights synthesize our own experience as well as learnings from others. At the

outset, we should note that each topic is inherently complex, so a few paragraphs are admittedly

inadequate. We also stay away from macro predictions like foreign exchange or interest rates – our

Magic 8 ball hasn’t been helpful, and, despite years of searching, we have yet to find a crystal ball.

Purpose, People, and Performance

Studying the history of business provides a number of insights and based on our research and personal

experience we believe the combination of Purpose, People, and Performance drives results. This three-

legged stool is rarer than a four-leaf clover – most companies only focus on one or two areas and few

deliver on all three.

Everything starts with People. As we continue to shift from a physical asset to an intangibles-based

economy, we believe the importance of attracting, developing, and engaging incredible people will

continue to grow. Lots of companies say people are their most important asset but few really back this

up by prioritizing people and culture.

Too often firms overly focus on incentives – proper incentives are necessary but not sufficient (and as

the Wells Fargo situation shows, improper incentives are dangerous). Other key components include

defining your critical roles, ensuring you have the right people in these roles (which unfortunately often

requires difficult decisions), having a rigorous hiring process, supporting a robust talent management

process, and creating clear decision rights that enable empowerment and accountability. More broadly,

we embrace Daniel Pink’s idea of creating cultures that combine autonomy, mastery, and purpose. We

know this is true in our case – we want to learn, grow, and have an impact.

Purpose answers the question of why we exist. Contrast the countless generic purpose statements

focused on shareholder value with that of Starbucks: “To inspire and nurture the human spirit – one

person, one cup and one neighborhood at a time” or Nike’s intention “to bring inspiration and

innovation to every athlete in the world.” Purpose and its cousins vision and core values define an

organization’s reason to exist, what they want to achieve, and their fundamental beliefs. These

components should be exciting, enduring, and authentic, and are generally found by looking within and

engaging with employees, customers, and other key stakeholders.

Performance is the third leg of the stool. To achieve its ambition a business must execute and deliver

results. High-performing companies have a well-defined strategy, clear goals and accountabilities, and a

process to manage performance on a daily, weekly, and monthly basis. Danaher is tremendous in this

area: They have a robust strategy process, clearly deploy goals across the organization, and embrace

daily management and problem solving to drive results.

Delivering on People, Purpose, and Performance is hard – companies are complex adaptive systems with

lots of moving parts. This is where a business system can be invaluable. A business system is a holistic

approach that focuses on creating long-term value by aligning people, process, and culture to strategy.

For example, in the Kanbrick Business System (KBS), we have four key pillars: People, Operating System,

Operational Excellence, and Growth. KBS breaks down siloes and connects the organization. For

example, KPIs cascade from the strategy, people receive training on problem solving to achieve their

goals, new hires are assessed on problem-solving skills, and incentives reward achieving KPIs. Business

systems are hard to implement – it takes years to ingrain them in a company, which deters investors

focused on quick wins to flip a business in a few years. However, Danaher and Toyota are both examples

of long-term value creation through a business system. At Kanbrick, we strive to use our business system

to align People, Purpose, and Performance and create enduring companies that get better every year.

Margin of Safety: An Operational View

Ben Graham coined the term margin of safety to refer to buying a stock at a discount to its intrinsic

value. While we are value investors by training and temperament, we have found the mindset equally

valuable in running companies and everyday life. Evolution engrains us with overconfidence (implicitly

the pros outweigh the cons), and margin of safety is a useful concept to mitigate this. Once you embrace

this mindset, the tactical applications are endless. A couple that we’ve found valuable include:

- Requiring new initiatives to earn well above our cost of capital. For example, if our target return

is 15%, then we generally look to invest in projects returning >25% vs. 15.1% (and aim to find

projects with 10x return potential / significant option value). Returns analyses are highly

sensitive to assumptions, and this helps us avoid the marginal projects and reduce the desire to

“make a few teaks” to move from 14.9% to 15.0%.

- Constructing our annual plan. If setting out on a 100-mile road trip, then you’d want more than

100 miles worth of gas (especially if you’re traveling through western Kansas where gas stations

are rarer than cows). In annual planning, we typically seek to have expected initiatives with at

least $1.50 of expected growth for every $1.00 in the budget as we know not everything will go

as planned.

Beyond the tactical applications, leaders should think deeply about margin of safety or resiliency in their

organization. The crucible of capitalism craves efficiency – customers always want better products faster

and at lower prices – and the dust heap of history is littered with formerly iconic firms such as Polaroid

and Blockbuster. The tradeoff is often in reduced resiliency and flexibility. COVID is another reminder

that we can’t predict the next crisis; however, we know dark clouds and stormy seas will appear again in

the future.

As Warren Buffett has said, “when the tide goes out you see who is swimming naked,” and reacting in

the moment is challenging. The adage to “Be Prepared” is a more sound approach. From using prudent

leverage to reducing supply chain vulnerabilities, it is important to understand key enterprise-level risks

and ensure you are comfortable with your positioning. This isn’t possible to get perfect because

everything is a continuum and involves tradeoffs. Philosophically, we believe it is important to create

businesses that can survive a large shock (Federal Reserve-style stress tests are a great tool for this) and

evolve faster than the environment. And this isn’t just a business issue; our electricity, food supply,

climate, and other critical infrastructure all seem to be overly focused on short-term efficiency. While

many investors look to run a 3-year sprint, we are running a marathon and are comfortable leaving

some gas in the tank (and giving up some short-term gains) to ensure we can finish mile 26 strong.

Moats

While “moat” has become a trendy word tossed around by countless companies, finding a strong moat

or competitive advantage in the wild is rarer than it seems. The best businesses have high returns on

capital, significant reinvestment opportunities (at high rates), and a moat that keeps others from

competing away that combination. Moats and sources of competitive advantage evolve and erode over

time. Newspapers used to have an enviable moat, but we all see how the water there has dried up.

This is often tied to technology paradigm shifts and new platforms that occur over decades – electricity

changed the basis of competition in manufacturing, and railroads fundamentally altered distribution –

and it is clear digital technology and the internet are rapidly changing the current competitive

landscape. If 2020 showed us anything, it is that the rate of change is accelerating, barriers to entry are

falling (e.g., the cost of starting a business today vs. in 1999), and technology is enabling new business

models that disrupt incumbents. The list of fallen stars is long, ranging from Kodak to countless retail

stores. In fact, the consumer products / retail world provides a case study of this reality. Over time,

distribution has evolved from catalogs to department stores to Wal-Mart and specialty retail and now

Amazon and e-commerce. Historically brands were developed through national advertising – which

required significant scale – and by gaining widespread distribution through large retailers. The internet

has fundamentally changed this dynamic – online ads allow small businesses to advertise to target

customers, and virtual shelf space is infinite allowing startups to quickly get distribution via Amazon or

their own website. While the internet has unlocked countless Shopify and Amazon brands that wouldn’t

have been economically feasible in another era, some things remain the same. Unit economics still

determine long-term success and attention, acquisition, and loyalty remain key. Similar changes are

happening across other sectors and industries.

We are often asked how to navigate this increasingly complex environment. There is no simple answer,

but we think a few things can be helpful. As investors, our focus is staying in our circle of competence

and to also invest in businesses that we feel reasonably confident have a 10+ year runway (e.g., tech

with a 1-year product cycle is too hard for us). On the operating side, we think it is critical to ensure

leaders of businesses have a clear understanding of the strategic positioning, macro trends, threats, and

opportunities. Equally important is creating an organization that can respond to these changes and

evolve faster than the market (e.g., run experiments to test and learn, shorten planning cycles, and

incorporate the voice of the customer). Much like other paradigm shifts, the internet and digital are

moving beyond “technology” companies to impact every business and every industry, which requires a

shift in approach and mindset to survive.

Other Observations

While we don’t make macro predictions, we have a few observations in the current low-rate, high-

stimulus environment. First, it seems to have distorted incentives and market signals. For example, the

Fed has flooded the system with liquidity due to COVID. This has helped challenged businesses survive

and stave off restructuring, but the long-term impact of this is unclear. Lower rates also increase

business valuations and asset prices, while numbing investors to potential risks.

This is magnified for companies whose value is primarily dependent on large future cash flows (e.g.,

$100 in 10 years is worth ~$91 today at 1% discount rate vs. ~$39 today at 10% discount rate). While

many early-stage and growth investors are presumably valuing businesses based on option value (which

can be massive in a network effects or winner-take-most market as evidenced by Facebook or Google),

eventually each business’ value must be anchored in the cash it produces.

To roughly illustrate this using a simple example, if a company is worth $1B (a unicorn) and its investors

want a 10% return, then this could be achieved by $50M in cash flow that grows 5% a year in perpetuity

or $100M a year in annual cash flow with no growth. This is no small feat, and the requirements only

increase as the cash is consumed by near-term operating losses. Far out and less certain cash flows are

also relatively more sensitive to a rise in inflation or interest rates, which could result in more valuation

compression. We aren’t sure what the future will hold; however, we do think there are likely a much

broader range of potential outcomes than generally contemplated.

Lastly, we often get asked about book recommendations, so with our inaugural letter, we will start with

one of our favorites for investors and operators alike: The Outsiders, by Will Thorndike. This book was

published in 2012 and chronicles eight unconventional CEOs who generated significant value. If you

haven’t read it, pick up a copy. And if you have already read it, read it again. Twice.

If you are interested in learning more about Kanbrick, please sign-up for our email list at

www.kanbrick.com

and we’ll share our Annual Letters along with other occasional thoughts and

insights.

Looking Ahead

As we enter 2021, we are focused on building Kanbrick for decades to come. Our goal at Kanbrick is

ambitious — we want to be the world’s best business builders by empowering people and organizations

to reach their full potential. We believe outstanding people united by a shared vision can accomplish

amazing things (and history has countless supporting examples of this). We’ve already begun building an

exceptional team and family of businesses – please reach out if you’d like to join us.

We wish you and your families health and happiness in 2021.

Best,

Tracy Britt Cool Brian Humphrey

This letter expresses the views of the authors as of the date indicated and such views are subject to change without notice.

Kanbrick has no duty or obligation to update the information contained herein. Further, Kanbrick makes no representation, and

it should not be assumed, that past investment performance is an indication of future results.

This letter is being made available for educational purposes only and should not be used for any other purpose. The information

contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or

solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein

concerning economic trends and performance is based on or derived from information provided by independent third-party

sources. Kanbrick, LLC (“Kanbrick”) believes that the sources from which such information has been obtained are reliable;

however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness

of such information or the assumptions on which such information is based.

This memorandum, including the information contained herein, may not be copied, reproduced, republished, or posted in whole