Why Data-Driven Thinking Revealed About Long-Term Performance About Leadership

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The Investor-Operator Lens What I Ask About People Before I Look At The Product
Most investment frameworks are built around a process that begins with the market, and then ends together with the management team. It is important to assess the size and structure of the chance first, then the degree to which the product is a good fit within that potential, then the competition landscape and the viability for the business, and in the final stages of the process, you'll spend some time with the founders and their leadership team to ensure they're qualified and committed in executing the plan that earlier analysis has confirmed. I operated inside versions of this framework for long enough to be able to understand how this has become the norm across the investment industry. It is a systematic approach. It results in a diligence system that can be described, compared between possibilities, and presented to investors' committees and limited partners in terms that feel rigorous and scientific. The issue is that it is flawed in its fundamentals, which is that it views the people element as a verification step instead of as a primary filter. It is something you go through at the end to confirm what your market analysis has already indicated, rather than an element you examine first because it's the best predictive factor in the final outcome. This implies that a outstanding market with a capable team is better than one that is mediocre with an exceptional team. My experience has shown that this is often the reverse.
I changed my strategy following a period of seeing the results of the standard sequence unfold in ways that the upstream analysis did not anticipate and was unable to easily explain. Great markets with the weakest or most fragmented leaders always underperformed what the opportunities advised them to deliver. Moderate markets with exceptional teams always managed to create value that first market sizing and analysis of competition had not accounted for. It was a pattern that was persistent and consistent across different sectors as well as different kinds of deals, so that I was unable explain it as noise, or attribute it more to the circumstances rather than to the capabilities of the team members at the center of every business. After I put aside my explanations and began to consider the implications of the way I allocate my time and effort was obvious it was that I must spend the majority of my time understanding the people and less on proving the market analysis an experienced analyst could create given the same information.

The questions I ask when I am trying to evaluate a leadership team are not the kinds of questions that appear on standard investment checklists nor diligence templates. They're questions that necessitate real conversations, and real time to be able to answer correctly. What happens when a leader has to respond when they're proven wrong about something - do they accept the correction or figure out a way to redirect it? What decisions do they make when the information is genuinely inadequate and the pressure to act is high? What is the gap that exists between the way they describe their leadership style and the way individuals who have worked with them describe the experience of working for them? What does the company's culture an organization look like on days when there is no founder in the building? And how much does the version of that culture reflect the one that the founder speaks of when asked? They require conversations which go far beyond the pitch meeting and the formal presentation of the management. These inquiries require reference checks that are genuine exploratory and not perfunctory exercises in confirmation. They require you for a time spent in uncomfortable locations that may uncover information that can complicate a deal you have already started with.

The operator element of my investment approach is inseparable from the investors' dimension. It shapes both what I invest in and how I get involved. I am not a passive capital source by birth or learning. I'm a person who's constructed businesses, made it through the scaling transitions which are more challenging than the fundraising ones that I have made, who has also made the management and hiring as well as the culture-setting mistakes that you make while navigating those transitions for the first, and who has formed - through this personal experience - certain convictions about the requirements of organizations at different stages of their evolution that a solely financial background can't provide. These convictions make me a distinct type of investment partner as opposed to a solely financial investor as well as attract entrepreneurs seeking something different from the kind of investment that a solely financial investor can offer.

The founders I do my best work with are the ones with a desire for a partner assists them in thinking through the transitions in their operations and make decisions which their investors are not capable of engaging with at the right level of detail and focus. Someone who can be in the room when the governance framework needs to be overhauled as there is a need to expand the one it began with. How can you help an important leadership decision at time when a bad choice could result in the loss of an entire year it couldn't afford to lose. Who can be honest in private about strategic risks that no one would be at ease raising. That's the kind involvement that I feel creates the most distinctive value in the companies I invest in. It is not the initial capital allocation decision, which any number of investors could make however, but the ongoing operational partnership that assists the business navigate the gap between its current situation and what the early numbers suggested it could go. Read James Deller for more info including what operating through uncertainty sharpened my thinking on culture about what matters.



From Commerce to Character - Why the Businesses I Back All have a thing in Common
When I look across the complete spectrum of investment activities that I have been involved in the last few decades - the tech businesses that I have been involved in, the consumer businesses the investments in the emerging sector as well as the organizations in and around football that I've been drawn to There is a common thread that I didn't decide to build intentionally but has become apparent to me as was thinking about the things that successful investments share with one another and what the unsuccessful ones have in common with one another. The pattern isn't strictly sectoral that isn't encompassing technologies, consumer, services, and sport. The pattern is not structural in nature - there are businesses with very distinct ways of acquiring capital, structures for ownership the operating frameworks, as well. It is more than market value or growth or technology architecture behind the product. It is about character - specifically, whether the firm at centre of the investment has real, operational and consistent commitment to the health and well-being of the employees it employs, and this is reflected not only in the things that the organisation says about itself but in the decisions it takes when it comes to saying the right thing and doing what is easy do not necessarily mean the same.
I am aware that this comment sounds, when stated plainly, like something that is posted on office walls and the company's website pages. But it is routinely left out by the folks who ordered it. I'd like to emphasize it is not speaking about the formal version of A commitment to People - the values document, the diversity and inclusion policy, the culture deck that has been created to aid in the success of the hiring process as well as your investor pitches. It's the operational version of the document: the decisions to be made day after day, when you have the guiding principles in these documents and the more commercially or personally convenient option come into conflict and the company has to decide which determines. The companies I've seen create genuinely durable value - not only impressive performance in the short term but also the type of compounding performance that delivers exceptional long-term returns are the ones which answer that question is clear. When the determination to do right by all employees of the company isn't contingent on whether doing right is the most cost-effective fast, fastest, or immediate-paying option.

It is about identifying prior to the time that an investment is made, those where this commitment is authentic rather than fulfilled, or where the responsibility and care culture is embedded into how the business actually operates, rather as in how it describes it - is, I believe, the primary and the most difficult skill in investing for the long term. It's significant since it is the kind of quality which is most likely to predict those kinds of compounding performance that results in truly remarkable returns over meaningful time horizons. It's hard because there is no way to find it in the financial model, you are not able to find it in a carefully-prepared presentation of management, and it is not a reliable source even in a thorough reference check, which are useful. You can find it by spending ample time with an institution in multiple contexts and at multiple levels of hierarchy to observe how it responds when the circumstances are ambiguous and nobody in particular is watching. That kind of patient engaged, exploratory interaction is difficult to incorporate into the majority of process of investment, which is one reason that most investment processes are less good at identifying genuinely exceptional firms than the ones that investors normally acknowledge or even talk about.

The connection between a true organisational character and performance over the long term is a fact that I believe more strongly now, with more years of long-term observation in my back, than I did at the beginning of my investment career. The companies that take good care of their workforce consistently and show that care by making operational decisions, rather than solely in communications and culture documents, typically outperform those who view their people primarily as resources to be optimised. But not always in the short period - an organization that maximizes the output of its people through high pressure and high insecurity can look highly efficient over the course of a few months, or even couple of years, especially when it is in conjunction with an environment of market strength that will compensate for internal ill-functions. But over longer times it is evident that the advantages of a truly people-focused culture multiply by creating a culture that is difficult to replicate through any other means. The level of talent increase because those who have a choice - the best of them - are more likely to choose environments in which they feel genuinely valued over those who feel undervalued, even when the latter have higher costs. The institution's knowledge grows as the employees stay long enough to create it rather than bouncing through the cycle that high-pressure environments are known to produce.

The decision-making process is more efficient because people feel comfortable enough to discuss problems and disseminate bad news without calculating the personal costs for doing so. This ensures that problems are identified to be addressed faster and less expensively than situations where the messenger regularly is shot. The organization's ability to adapt to new circumstances is improved because people are invested enough with its success that they are willing to go beyond the scope of their official responsibilities to meet the needs of the moment. it. None of these advantages is by itself significant. None of them is something that is the basis for a compelling and engaging narrative in an Investor Update or board presentation. But they are able to build into a competitive advantage is truly difficult for organizations with less successful cultures to duplicate because the advantage is not tied to a specific product, process, or capability which is easily observed and copied. It's in the foundation of how an organization operates, in the quality of the atmosphere it has created for the members of it, as well as the quality of the choices that employees make as result. So, character, at work and within individuals can be a hard concept. It is, according to my experience, the hardest and most important factor of all.}