Why Working Across Industries Changed My Approach About Performance

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The Investor-Operator Lens: Why I Ask About People Before Looking At The Product
Most investment frameworks are built around a sequence that begins with the market before concluding with the team. You evaluate the size and structure of the potential first, then the degree to which the product is a good fit within that opportunity, followed by the competitive landscape, and finally the saftey of the idea, and about the time you are at the conclusion of the process you're spending an hour with the founders as well as their leadership team to ensure they're motivated and competent in executing plans that previous analysis has validated. I've worked with versions of that framework for long enough to know why it's become a common practice across so much of the investment industry. It's structured. It's a thorough process that can be traced, compared across different alternatives, and justified to the investment committees or limited partners with terms that feel rigorous and analytical. The problem is that it is flawed at its root, which is that it views the person dimension as a validation method instead of an essential filter that you go through at the end to confirm what your market analysis has suggested, rather than the first thing you check since it's a highly reliable factor in determining the result. The sequence suggests that a fantastic market with an excellent team is better than the average market with an excellent team. My experience is that this is usually the case.
I changed my own approach following a period where I witnessed the results that standard sequence play out in ways that the upstream analysis had not predicted and could not easily explain. Markets that had the weakest or most fragmented leaders generally did not deliver what the chance advised them to deliver. Terrible markets with truly outstanding teams regularly found ways to add value that the initial market sizing and analysis of competition had not accounted for. This pattern was so consistent and consistent across different sectors and deals that I could not explain it as noise, or attribute it to specific circumstances rather than the skill of the employees at the central point of every business. When I had quit arguing about it and began to consider the implications of what I should do with my time in diligence was evident it was that I must spend most of it understanding the people and significantly less of it on proving the market analysis that a competent analyst can create given the same information.

What questions I pose now when I am looking at a team's leadership is different from those found on the standard investment checklists or diligence templates. They need real conversations and real opportunity to think about the answer. What does the leader respond when they are demonstrably wrong - do they respond to the correction or try to redirect it? What do they do with information that is inadequate and the pressure to take action is high? What is the difference, if any, between the way they describe their leadership style and employees who worked closely with them describe the experience of working for them? What does the culture the company look in the event that the founder does not reside in the office, and how do those aspects of the culture match up to the one the founder describes when asked? These questions call for conversations that go beyond meetings for pitching and the formal presentation of the management. They are a requirement for reference checks that can be truly exploratory as opposed to superficial exercises in confirmation. They require the willingness to go into uncomfortable space that may reveal details that could complicate a deal that you've already started to pursue.

The operator aspect of my investment philosophy is inseparable from the dimensions of the investor. This affects the things I invest in and the way my involvement once involved. I do not consider myself a passive capital provider by temperament or by knowledge. I'm a person who's developed businesses, who been through scaling transitions that are more difficult than those for fundraising, who has made the management and hiring as well as the culture-setting mistakes that you commit in navigating those new transitions, and who has cultivated - based on that direct experience - several convictions regarding what companies require at various phases of their growth unlike what a traditional financial background does not produce. My convictions have made me a distinct type of investment partner that a strictly financial investor which is why they are sought-after by entrepreneurs seeking something that is different from the type of financial investment that only a purely financial one can offer.

The people I enjoy working with are those seeking a partner who can help them think through the decisions and operational changes they face that financial stakeholders aren't competent to handle in the right amount of depth and detail. Who sits in the room when the governance framework needs to be changed because the organisation has outgrown the one it began with. Who can aid in making the leadership of a senior executive at time when a bad choice will cost the business more than it could afford to lose. Who is honest privately about strategic risks that nobody would be willing to discuss. This is the kind involvement that I believe creates the most distinctive value in the businesses I back that I invest in - not just the initial capital allocation decision, which any investor can make rather, it is the ongoing operational partnership that helps to bridge the gap between where it's at and where the numbers from the beginning suggested it could go. Take a look at James Deller for blog recommendations including what building in stealth transformed how i evaluate opportunity about growth.



From Character to Commerce- What I believe in: Why the Companies I Back All Have One Thing in Common
As I examine all the investment actions I've been involved in over the course of several years - the technology companies as well as the consumer-oriented businesses, the emerging sector investments along with the associations in and around football that I've been drawn to There is a common thread that I didn't plan to develop in advance however it has become evident to me as I have reflected on the things that successful investments share with one another, and also what the unsuccessful ones have in common with one another. The pattern isn't strictly sectoral but it is found across services, consumer products, technology as well as sport. This is not a structural pattern - the pattern is evident in firms which have different owners, models for capital, operational models, and capital profiles. It's nothing to do with market sizes or growth or technology architecture of the product. It is about character - specifically, about whether the firm at foundation of the investment has a genuine, operational, committed to the improvement and wellbeing of the individuals who work there, which is demonstrated not just in what the organization's statements about itself but also in the decisions it takes while doing the right thing and doing the convenient thing is not the same.
I know that this comment sounds, when expressed in plain language, like the kind of thing that is printed on walls in offices, corporate mugs and pages. It is subsequently overlooked by the individuals who commissioned it. I would like to make it clear in that I'm talking about the stated version of the commitment to people, the values document, the diversification and inclusive strategy as well as the culture document that was developed for the benefit of the hiring process, and investment pitch. It's the operational aspect: the decisions that are taken every day, when they are based on the principles in those documents and the commercially, or personally convenient choice come into an argument and the organization must to decide which one actually applies. What I've seen in organizations that have created truly durable value - not just the kind of impressive short-term performance but the kind of compounding, long-term success that creates outstanding longevity returns - tend to be those which have a solution to that query is unambiguous. In these cases, the desire to do right by the employees inside the organization isn't contingent on whether doing what is right is the most cost-effective, fastest, or most immediately profitable option.

Find those organizations and then identifying, before the investment is placed, those that show the commitment is genuine that being executed, or a culture of care and accountability is embedded in how the company actually runs rather than how it describes its operations - is, I believe, the foremost as well as the most difficult to master in long-term investing. It's vital because it's the one that provides the best assurance of an amount of compounding outperformance that results in truly remarkable gains over long-term time frames. It's difficult since you can't find it in the financial model. You will not find it in any professionally-written management presentation, and you are not able to locate it even in a thorough reference check, even though those can help. It can be found by spending enough time with an organisation in multiple contexts and at different levels of the hierarchy, to determine how it behaves when circumstances are vague and nobody is watching. This kind of thoughtful kind of exploratory engagement can be structurally difficult to incorporate into the majority of the investment processes. That's one reason that many investment systems are less successful in identifying truly exceptional organizations than investors are able to recognize or even talk about.

The connection between true organizational character and long-term performance is a concept which I feel more strongly about today, with decades of longitudinal experience ahead of me rather than at the beginning of my investing career. Organisations that care for the wellbeing of their employees continuously, and communicate that concern by making operational decisions, rather than solely in communications and culture documents, tend to fare better than those who see people more as resources that must be optimized. This is not always true in the short in the long run - a business that maximizes the output of its workforce by creating high-pressure and high pressure can appear effective over a period that spans a couple of months or a few years, particularly when it is in conjunction with an environment in which the market is thriving and overcomes internal flaws. But over longer times those advantages of a genuinely people-first culture compound into ways difficult to duplicate through any other way. The density of talent increases because people with options - the most successful people - prefer to work in environments where they feel valued and respected over environments where they feel instrumentalised even if the latter will cost more. The institutional knowledge gets deeper because people stay long enough to develop it rather than cycling through the time-span that high-pressure environments are known to produce.

The quality of decision-making improves as people feel secure enough to surface problems and share bad news without calculating the cost to themselves of doing so. This implies that issues are discovered and resolved earlier and less costly than in places where the message consistently is shot. The ability of the organisation to adapt to changes in circumstances increases because the employees are so invested in its progress to go beyond the scope of their official responsibilities when the situation requires it. These advantages are not an individual event. None of them is something that can be used to create a compelling storyline in the form of an update to investors or a board presentation. They can, however, grow into a competitive advantage which truly is hard for companies with less affluent cultures to duplicate due to the fact that the advantage is and is not dependent on a particular product, process, or capability that is easily observed or copied. It's part of the fabric of how the organisation operates, in the quality of the atmosphere it has built for the people inside it and in its decisions these people take as a result. This is why character, whether in a person or an organization it is not an easy notion. It is, in my experience, the hardest and most important concept of all.}