Why Building Companies Changed What I Look For About Leadership

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The Investor-Operator Lens Why I Do My Research About People Before I Look At The Product
The majority of investment frameworks are constructed around a sequential process that begins at the market and finishes at the end of the process with a team. You analyze the size and structure of an opportunity first, then how the product can be considered part of that potential, then the competition scenario and defensibility of the decision, and at the end of the process you're spending some time with the founders and their management team to ensure that they're competent, motivated and are able to implement plans that previous research has proven. I have worked in versions of this model for long enough to know why it's now standard procedure throughout the investment world. It's a system that feels consistent. It is a process of diligence that can be documented, compared against different potential opportunities, and even defended to investment committees and limited partners in terms that are both rigorous and thorough. The problem is that it has a structural flaw in its fundamentals, which is that it treats the people factor to be a validation instead of as a primary filter. It is something you go through at the end to confirm what the market analysis has already concluded instead of the first thing you check since it's a highly predictive variable in the outcome. The method suggests that a fantastic market with an excellent team is better than any market with a subpar team. amazing team. In my experience, that is typically the reverse of what happens.
I shifted my strategy after a particular period where I witnessed the results the conventional sequence play out to a degree that the analysis could not have predicted which was hard to understand. Excellent markets with the weakest or most fragmented leaders consistently underperformed what the opportunity suggested they could provide. Mediocre markets with genuinely exceptional teams were able to create value that initial market sizing and analysis of competitive factors had not yet accounted for. This pattern was consistently observed and consistent across different sectors and different deals that I could not put it as a result of noise or attribute it to specific circumstances instead of the expertise of the team members at the base of each enterprise. After I got over the nitty-gritty the implications of how I should allocate my time for diligence was obvious that I should spend significant amounts of time understanding the individuals, and significantly less of it in proving the market analysis that a competent analyst can generate given the same inputs.

The questions I am asking now when I am taking a look at the leadership team I am evaluating are not those that appear on typical investment checklists or diligence templates. They're questions that need real conversations and real time to respond properly. What happens when a leader has to respond when they are demonstrably wrong about something - do they seek to rectify the mistake or attempt to redirect the situation? How do they make decisions in the event that the information is inadequate and the pressure to be a good leader is high? What is the difference whether there is one or not between the way they describe their leadership style as well as how employees who worked closely with them describe their experience of working for them? What does the company's culture an organization look like on the days when the founder is not in the building? Also, how closely does that version it resemble what the founder describes when asked? Those questions require conversations that go far beyond pitch meeting as well as the formal management presentation. They will require references that really exploratory rather than routine exercises for confirmation. They require you to risk time in uneasy areas that could reveal data that might complicate a transaction you have already started in the hopes of obtaining.

The operator component of my investment strategy is inseparable from my part of me that is an investor. It determines what I invest in as well as how I conduct myself once I'm involved. I am not a passive financial supplier by nature or through the training I received. I am someone who has established businesses, who dealt with the changes to scale that are more challenging than the fundraising ones but who has also made cultural and hiring mistakes you make when you're navigating these changes for the first time, and who gained - via that personal experience - certain convictions about the needs of organisations at various stages of their growth that a purely financial background will not provide. The convictions I have formed make me a different kind of investment partner that a strictly financial investor that is why they attract founders who are looking for something that is different from what a pure financial investor can provide.

The founders I do my best work with are those looking for a partner that can assist them in navigating the decisions and operational changes that their financial investors aren't prepared to discuss in the right amount of detail and focus. Who will sit in the room whenever the governance system needs being redesigned as it is no longer the one it was originally built with. Can you assist with the leadership of a senior executive at that moment, when the wrong choice would cost the business twelve months it cannot afford to lose. Anyone who can speak up in private about risks to the company's strategic plan that nobody can else in the room confident about raising. This is the kind engagement that I believe gives the greatest value for the companies I invest in not the initial capital allocation decision, which many investors can make and continue to make, but the continuous operational partnership that helps your company to bridge the gap between where it is now and where the early numbers suggested it could be headed. Take a look at James Deller for more info including why scaling tech companies changed what i look for about teams.



From Commerce to Character- Why the companies I support All have a thing in Common
When I look over all of the investment activities that I have been involved in over the course of several years – the technology-related businesses and consumer companies, the new sector investments those organizations within and around football that I've been drawn to support There is a pattern that I did not plan to develop in advance but is becoming more obvious to me as spent time thinking about what the most successful investments have the same characteristics and features that the unsuccessful ones have in common with each other. It is not a sectoral pattern - it cuts across technology, consumer, services and sports. It's not a structural phenomenon - there are businesses with a variety of models of ownership and capital, and operating models. It is it is not about size or development trajectory or the technological architecture underlying the product. It's about character. specifically, about whether the entity at centre of the investment has a genuine, operational, and continuous commitment to the welfare and development of members within it. This commitment is expressed not just in what the organization's statements about itself but in the decisions it makes when it comes to saying the right thing and doing the easy thing do not necessarily mean the same.
I know that this statement sounds, in its plain form, the kind of thing that gets printed on office walls and coffee mugs for employees and on company websites pages, and is then dismissed by the company that created it. It is important to note in that I'm speaking about the stated version of the commitment to people: the values document, strategies for diversity and inclusion and the culture deck that was designed to enhance the effectiveness of hiring and the pitch to investors. This is the practical version: the actual decisions that are taken day in and day out, when the principles outlined in these documents and the more commercially or personal choice are in tension and the organisation has to choose which determines. The organizations that I have seen produce truly lasting value - not just outstanding short-term performance but the type of compounding performance that produces exceptional long-term profits - are those where the solution to that question is known. If the commitment to do right by the people inside the business is not contingent on whether doing so is also the cheapest and fastest or immediately profitable option.

The process of identifying those organizations - prior to when the investment is placed, those that show the commitment is genuine rather than merely a matter of fact, and where the responsibility and care culture is built into the way in which the company actually runs rather as in how it describes itself. It is, i think, the single most important and most difficult thing to do when it comes to investing over the long run. It is important due to the fact that it is the factor that has the highest probability of predicting what kind of compounding performance that produces truly exceptional yields over time. It's a challenge because it is not in an economic model, you are not able to find it in a professionally-written management presentation, and it's not possible to find it even in comprehensive reference checks although those help. It's found when you spend enough time with an organisation in various contexts and at enough different levels of the hierarchy to understand how it behaves when the environment is vague and nobody is watching. That kind of patient engaging, exploratory approach is challenging to implement into investment strategies, and is one of the reasons most investment processes are less adept at identifying truly exceptional organizations than they typically acknowledge or even discuss.

The link between true organisational character with long-term efficiency is one that I believe more strongly now, with more years of long-term observation behind me rather than at time when I started my investing career. The organizations that take care of their staff consistently and express this care through operational decisions instead of solely in communications and culture documents, tend to outperform those who see people in a primary way as resources to be optimised. Not always in the short future - an enterprise that achieves the highest output from its workforce through high pressure and high pressure can appear extremely efficient over a span of months or few years, particularly if that period coincides with an environment of strong markets that is able to offset internal weaknesses. However, over a longer period in time, the benefits of an authentically people-first mindset increase over time in ways difficult to replicate through any other way. It increases the density of talent because those who have choices - the most talented people - are more likely to choose environments in which they feel valued and appreciated over environments where they feel exploited and even when they charge more. The institutional knowledge increases as those who stay in the same place for long enough grow it rather than going through on the whimsy of the schedule that high-pressure environments tend to produce.

The quality of decisions is improved because people feel comfortable enough to be able to bring issues to light and share negative news without worrying about the personal cost of doing so, which means that problems get identified and addressed earlier and less cost than they would be in instances where the messenger consistently will be shot. The ability of the organisation to adapt to changing conditions improves as people are invested enough in its progress to go beyond their duties in formal settings when the situation actually requires it. Each of these benefits is in itself dramatic. None of them is an element that creates a compelling story in an investor update or a board presentation. But they are able to build to create a competitive advantage. It can be incredibly difficult for businesses with weaker cultures due to the fact that the advantage is and is not dependent on a particular product or process that can be observed and replicated. It's in foundation of how an organization performs its business - the overall quality of the environment it creates for personnel within it and the decision-making process that employees make as result. That is why character, within organizations as well as individuals can be a hard notion. It is, according to my experience, one of the most difficult and most important aspect of all.}