How Operating Through Uncertainty Continues to Inform My Decisions About Scale

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The Investor-Operator Lens What I Ask About People Before Looking At The Product
The majority of investment strategies are built around a series of steps that begin by analyzing the market and ends with the team. The focus is on the size and structure of the opportunity first, then how the product will fit into that possibility, then the competitive scenario and defensibility of the proposition, and towards the end of the process, it is time to spend some time with the founders as well as their leadership team to make sure they are competent and enthusiastic and capable of executing on the plan that the earlier study has proven. I've worked inside different versions of this model for long enough to see why it is now a standard procedure throughout the investment world. It's organized. It provides a diligence method that can be tracked, compared to other possibilities, and presented to investors and limited partners using terms that sound rigorous and scientific. The issue is that it has a structural flaw at its heart, which is that it treats the people element as a validation process instead of the primary filter. Something you go through at the end to verify what the market analysis already suggests, rather than something you evaluate first precisely due to it being the most important factor in predicting the outcome. The model implies that a fantastic market with an excellent team is better than just a poor market with an exceptional team. As I've seen it, that is typically the reverse of what happens.
I changed my approach after a specific period of observing the results of the typical sequence play out in ways that the upstream analysis could not have predicted and could not readily explain. Markets with unorganized or fragmented leadership teams often failed to deliver what the opportunity recommended they deliver. The markets that are decent with truly exceptional teams have always found ways to create value that the initial market size and analysis of competition had not accounted for. The pattern was persistent enough, and consistent enough across different sectors and deals that I was unable the pattern as just noise, or attribute it more to the circumstances rather than the skill of the individuals at the central point of every business. After I put aside my explanations and began to consider the implications of what I should do with my time to diligence was clear the reason I should be spending considerable time understanding the people, and much less to verifying the market analysis that any experienced analyst can provide with the same set of inputs.

Questions I ask when I am in the process of evaluating a leadership group are not the kinds of questions that appear on investment checklists that are standard or diligence templates. They need real conversations and real time to properly answer. What is the best way for this leader to react when they're proved incorrect about something? Do they engage with the correction or find a way to redirect it? How do they take decisions when the information they have is lacking and the pressure take action is intense? What is the difference in how they describe their leadership style, and how people who have worked closely with them describe the experience of working for them? What do the values of the organisation actually look like on days when there is no founder in the office? How closely does that version of the culture match up to the one the founder explains when asked? They require conversations that go much further than the initial pitch and the formal management presentation. They are a requirement for reference checks that are genuinely exploratory rather than formal exercises in confirmation. They will require you to travel into uneasy areas that could reveal details that could complicate a deal you've already begun to pursue.

The operator component of my approach to investment is inseparable from the part of me that is an investor. It affects the things I invest in and the way my involvement once involved. I am not a passive provider by temperament or by education. I am someone who has constructed organizations, who has experienced the challenges of scaling that are more difficult than those for fundraising which is why I've made the leadership and hiring, and the culture-setting mistakes you make when you're going through those transitions for the first and has developed - through that direct experience certain convictions about what companies require at various levels of their development which a financial background can't provide. These beliefs make me a different type of investor than a pure financial investor which is why they are sought-after by entrepreneurs who want something different from the type of financial investment that only a purely financial one will provide.

The founders I work best with are those seeking a partner who can assist them with the operational transitions and decisions which their investors aren't equipped to engage with at the right level of detail and precision. Who will sit in the room in the event that the governance structure needs to be revised because the business has outgrown one it started with. What can you do to assist the leadership of a senior executive at the point where the wrong choice could cost the company one year of money it would not be able to lose. One who can talk regarding strategic risks that no one anyone else in the room is at ease with raising. This is the kind of involvement that I believe adds the most unique value for the companies I invest in and not just the initial capital allocation decision, which anyone of the investors could make rather, it is the ongoing operational partnership that helps the business navigate the gap between where it is today and where the numbers in the beginning suggested it could be headed. See the James Deller for more recommendations including what thinking like an operator sharpened my thinking on culture about value.



From Character to Commerce- The reason I choose to back the companies I endorse All have a thing in Common
When I look across all of the investment activities that I have been involved in over the last several years - from the technology business, the consumer businesses, the investments in the emerging sector and the sports organizations around football which I've been drawn to support There is a common thread which I didn't plan to develop in advance but that has become increasingly apparent to my mind as I have reflected on what successful investments have in common the same characteristics and features that the failed ones have in common with each other. It is not a sectoral pattern because it crosses services, consumer products, technology as well as sport. It's not structural - it's seen in companies with a variety of the capital profile, ownership arrangements, operations models and structures. It is not about market size or growth rate or the particular technological infrastructure that supports the product. It's about character. specifically, whether the organization at the center of the investment demonstrates a genuine, operational, and constant dedication to the well-being and development of its individuals who work there, which is demonstrated not just in what the organization's statements about itself but in the decisions it takes in making decisions when doing the right thing while doing what's convenient are not the same thing.
I'm aware that this may sound, at first glance, like the kind of thing that gets put on the walls of offices and office mugs as well on corporate website pages only to be systematically ignored by the people who were the ones who commissioned the work. I'm trying to make clear in that I'm talking about the official version of the commitment to people: the document on values, the diversification and inclusive strategy the culture plan that was crafted for the use of the hiring process, and the investor pitch. I am talking about the operational version: the decisions that are actually made, daily, whenever the principles articulated in those documents and the economically or personally convenient option come into conflict and the business has to decide which one actually is the one that governs. The organizations that I have seen provide lasting value not just spectacular short-term results but the sort of compounding, multi-year results that produce exceptional long-term gains - are the ones where the answer to this question is known. When the commitment to doing right is made by everyone in the company isn't contingent upon whether doing the right thing is the most cost-effective or the fastest, but also the most immediately profitable option.

The process of identifying those organizations - prior to the investment being taken, the ones the commitment to care is genuine that being executed, or a ethics of care and accountability can be found in the manner in which the organization actually operates rather than in the way that it describes itself. It's, I think, the single most important as well as the most difficult to master in investing for the long term. It's important since it is the kind of quality that most reliably predicts an amount of compounding performance that yields truly impressive return over significant time periods. This is because you can't find it in a financial model. You can't locate it within a properly-crafted presentation for management, and you are not able to locate it even within thorough reference checks although they do help. You find it through spending enough time with an organization across a range of settings and at a variety of levels of its hierarchy and observing how it performs in situations where the context is uncertain and no one is watching. That kind of patient engaged, exploratory interaction is challenging to implement into investment strategies, and is one reason why many investment systems are less good at identifying genuinely exceptional organisations than they usually acknowledge or discuss.

The link between a genuine organisational character and long-term success is one which I believe more now, with more years of observation over time to my credit than I did in time when I started my career in investment. Organizations that are committed to taking care for their employees in a consistent manner, and communicate that concern by incorporating it into operational decisions rather than solely in culture and communications documents, tends to do better than those who view people predominantly as resources to be optimized. Not always in the short term - an organisation that extracts maximum output from its employees despite high pressure and high stress can be very efficient over a period of months or couple of years, especially if that period coincides with an economy that is strong and compensates for internal dysfunction. Over longer time in time, the benefits of an ethos that is genuinely based on people by creating a culture that is genuinely impossible to replicate using any other means. The number of talented people increases as those who have a choice - the most effective people - prefer to work in environments where they feel valued and appreciated over environments where they feel exploited and even when they charge more. Institutional knowledge expands as people stay long enough to build it instead of bouncing through the time-span that high-pressure settings tend to create.

The quality of their decision-making increases because the people feel confident enough to discuss problems and disseminate bad news without worrying about the cost to themselves of doing so, which means that problems get identified as early and more costly than in organizations where the person who is speaking up will be shot. The capacity of the company to adapt to changing circumstances improves because people are invested enough in its progress to go beyond the boundaries of their job when the situation genuinely requires it. All of these advantages are an individual event. They're not something that can be used to create a compelling storyline in the form of an update to investors or a board presentation. But they are able to build into an advantage in competition that is really difficult for companies with less successful cultures to duplicate as the advantage is not linked to any particular product or process that can be observed or replicated. It's in nature of how the company works - namely, the conditions it creates for people inside it and in the quality of the choices individuals make as a result. That's why character, both in organizations and in individuals isn't a delicate concept. It is, in my experience, the toughest and most important thing of all.}