Why Developing People at Scale Shifted My Priorities About Character

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The Investor-Operator Lens This Is The Reason I Want To Know About People, Before Looking At The Product
Most investment frameworks are built around a sequence that starts with the market, and then ends on the staff. It's about assessing the size of and structure of the potential first, then how the product can be considered part of that market, and then you look at the competitive environment and the sway of the idea, and around the middle of the process, you'll spend some time with the founders as well as their leadership team to ensure they are competent and enthusiastic and capable of executing on the strategy that earlier analysis has confirmed. I've worked with versions of this framework for a long time enough to know why it is now a standard procedure across the investment industry. It's organized. It generates a diligence procedure that can be documentable, evaluated across different possibilities, and presented to investment committees and limited partnerships in terms that seem rigorous and analytical. The issue is that it has a structural flaw at the root, which is that it treats the people factor as a confirmation step rather than the primary filter. Something you review at the end to verify what the market analysis has already concluded instead of something you evaluate first precisely due to it being the most relevant factor to the outcome. The sequence implies that a good market with a well-trained team is more effective than one with a weak team. extraordinary team. Based on my experience, this will often be the reverse.
I modified my method after a certain period after seeing the effects of that sequence of events play out with a way that the initial analysis could not have predicted and couldn't easily explain. Great markets with the weakest or most fragmented leaders typically did not perform as the opportunity recommended they deliver. Terrible markets with truly outstanding teams are always able to add value that the initial market sizing and the competitor analysis had not adequately captured. It was a pattern that was persistent, and consistent enough across various sectors and deals that I could not put it as a blip or attribute it to specific circumstances rather than the excellence of the people at base of each enterprise. Once I quit arguing about it, the implication for the way I allocate my time on diligence was crystal clear: I should be spending considerable time understanding the people, and less on confirming the market analysis that any competent analyst could develop with the same knowledge.

The questions I now ask when evaluating a leadership team are not the kinds of questions that appear in the typical investment checklists and diligence templates. They are questions that have to be discussed in real time to respond properly. How do leaders respond when they are demonstrably wrong about something - do they accept the correction or find a method to redirect the issue? How do they take decisions when the information they have is incomplete and the pressure to be a good leader is high? What is the difference or a gap between the way they describe their leadership style and the way those who have been closely with them describe the experience of working under them? What do the values of the business actually look like on days when there is no founder in the building? And how closely does that version it resemble what the founder has described when asked? This kind of question requires conversations that go beyond pitch meeting as well as the formal management presentation. These inquiries require reference checks that are genuine exploratory and not formal exercises in confirmation. They require the courage for a time spent in uncomfortable areas that could reveal some information that could complicate the terms of a deal you have already started to desire.

The operator element of my approach to investment is inseparable from the investors' dimension. It shapes both what I invest in as well as how I participate once I'm involved. I are not a passive capital provider because of a temperament or having a formal education. I'm a person who's constructed organizations, who has had to navigate the scaling changes that are more difficult than those for fundraising and has made the leadership and hiring, and the culture-setting mistakes that you make as you navigate these shifts for the second time and gained - via that direct experience certain beliefs about what organizations need at different stages of their evolution that a purely financial background does not produce. These beliefs make me a different kind of investment partner different from a financier who is solely focused on financials and attract founders who are looking for something that is different from what a pure financial investor can offer.

The founders I do my best work with are those needing a trusted partner who can assist them in navigating how to make the necessary operational adjustments and decisions that their financial investors aren't equipped to engage with at the right level of depth and detail. Who will be in the room to help when the structure of governance needs to be overhauled as there is a need to expand the one it was founded with. Who can guide an important decision by senior leaders at in a time when a wrong decision could cost a company an entire year it couldn't afford to lose. Who can speak regarding strategic risks that nobody would be at ease raising. That's the kind of participation that I think creates the most distinct value in 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 the company navigate the gap between where it's at and the direction that the initial numbers suggested it could go. Read James Deller for blog info including why thinking like an operator taught me about scale.



From Commerce to Character- The reason I choose to back the companies I endorse All have one thing they share in Common
If I take a look at my investment portfolio, I see the full spectrum of work I've participated in over the last several years - the technology businesses in addition to the consumer-oriented companies, the investments in the emerging sector companies in and around football that I've been drawn to There is a pattern which I didn't have in mind to design but has become more evident to me over the years as I have thought about the commonalities that the investments that are successful share between them and what those that are unsuccessful share with each other. This pattern isn't sectoral in nature, it runs through the fields of consumer technology, technology, services and sport. It is not structural - it's evident in companies with very different structure of ownership, financial profiles and operating models. It is less about market volume or growth prospects or the specific technology architecture underlying the product. It's about character. specifically, about whether the business at the focus of the venture has a genuine, operational, committed to the health and well-being of the people within it. It is expressed not just in what it says about itself but in the decisions it takes by saying the right way or doing the easiest thing is not the same.
I'm aware that this may sound, straightforwardly, something that is printed on office walls and business mugs, as well as on corporate website pages. Then it is left out by the folks who were the ones who commissioned it. It is important to clarify to clarify that I'm talking about the stated version the commitment to individuals - the values document, diversification and inclusive strategy, the culture deck that is designed for the sake of the hiring process and the pitch to investors. We are talking about the operational version: the choices to be made day after day, when the principles set out in those documents and a commercially or personal choice are in tension and the organisation has to choose which is the one that governs. The businesses I've observed create genuinely durable value - not just the kind of impressive short-term performance but also the kind of compounding, multi-year efficiency that results in extraordinary long-term results - are the ones where the response to that question is predictable. In these cases, the desire to do right by the people inside the company isn't contingent on whether doing it right is the most cost-effective option, the fastest, or the most immediately profitable option.

Finding those organisations - identifying prior to any investment being taken, the ones the commitment to care is genuine than fulfilled, or where the character of care and accountability is embedded in how the company actually runs rather than the way in which it describes it - is, I consider, the most crucial and most difficult job in investing for the long term. It's vital because it's a quality that can most accurately predict those kinds of compounding performance that provides truly extraordinary returns over long time frames. It's difficult since it is not in a financial model, are not able to find it in a properly-crafted presentation for management, and you won't be able to pinpoint it even with thorough reference checking, although they do help. You can find it by spending sufficient time with the company in multiple contexts and at a variety of levels of its hierarchy for you to get a sense of how the organisation behaves when the environment is uncertain and nobody is paying attention. This kind of thoughtful and exploratory engagement is challenging to embed into financial processes. It is one of the main reasons many investment methods are not as skilled at identifying truly exceptional organizations than they typically acknowledge or even talk about.

The connection between genuine organisational character and long-term performance is a connection that I believe more strongly now, with more years of continuous observation in my back and more experience than I had at earlier in my investment career. The organisations that take care of their workforce consistently and express this care in operational decisions rather than only in culture and communications documents, typically outperform those that view people mostly as resources that need to be optimized. Not always in the short period - an organization that achieves the highest output from its employees despite high pressure as well as high anxiety could be excellent over a number for a number of months, perhaps even a few years, particularly if that period coincides with a strong market environment that overcomes internal flaws. However, over longer durations the benefits of a genuinely people-first culture compound and are genuinely difficult to replicate using any other means. It increases the density of talent because people with options - the most effective people - tend to go for environments in which they feel valued and respected over environments that make them feel manipulated even though the former cost more. The institutional knowledge is enriched because the employees stay long enough to grow it rather than going through on the timescale that high-pressure environments typically produce.

The quality of decision-making improves as employees feel safe enough identify problems and discuss bad information without considering the personal cost of doing so. This makes it possible for problems to be identified and addressed sooner and less costly than in places where the message consistently shoots. The ability of the organization to adapt to changes in the environment improves since the employees are so invested in its success to go beyond the scope of their official responsibilities when the situation requires it. All of these advantages are singularly dramatic. None of them is an element that is the basis for a compelling and engaging narrative in an announcement to shareholders or board presentation. However, they will eventually build into a competitive advantage can be incredibly difficult for businesses that have weaker cultures to duplicate because the advantage is not in a particular product, process, or capability to be studied and replicated. It's in the nature of how the company runs - the quality of the environment it has created for the members of it, as well as the quality of decisions they make as a result. So, character, for individuals as well as organisations is not a soft notion. In my opinion, the most difficult and most important concept of all.}