What Working with Founders Revealed About Long-Term Performance About Success

That's Why I Stopped Looking For The Next Deal And Started Inquiring Who's In Charge
There is a particular form of the investor's behavior that people are aware of immediately, even if they have no idea of it. It's the one where it starts with the deck, and then moves swiftly into numbers, stays over the size of market ending with a discussion of exit multiples. The executives within the business that take the initiative to implement what is on those slides - barely come up. Even if they appear, it tends to be in the context of projections for headcount instead of as individuals with their own motivations, histories, as well as blind spots which guide every important decision the organization makes. I've spent a long time in that fashion to understand its appealing qualities. It feels rigorous. It's an analytical feeling. It's like making a judgment based upon facts rather than intuition. The problem is that it constantly excludes the single factor that is most likely to determine in how a business will perform well in the long and short term quality and character of the individuals who run it. This exclusion isn't accidental. It's the result of frameworks which were created to be documentable and repeatable and consequently favor those things that can be monitored and compared with items that are important but harder to measure.
I was taught this from the wrong way, in the same way that most people do when I watched companies with extraordinary basics fail due to the fact that their leadership team was not able to keep it together when under stress, or by watching firms with basic base perform dramatically higher because the people who work there were truly exceptional. After many of those lessons I stopped assuming that those numbers did all the heavy lifting in my investment decisions. They weren't. They were a deficient indicator of the choices made by human beings, and the performance of those choices depended substantially on who these human beings were as well as how they behaved under stress under the stress of a missed quarter, unimportant departures, competitor's decision they hadn't anticipated, or a board relationship that had become more complicated. This is why I changed the way I began each evaluation meeting. Instead beginning with the size of the market or revenue forecast I shifted to what I consider as the room question Who actually manages this organisation when the pressure is on, how can they make the right decisions when their information isn't accurate What is their approach to the people around them, and what happens to the culture this organisation when its founder is not in the room.

None of the questions listed above appear on the typical investment checklist. All of them, in my opinion, have been better predictive of long-term performance than anything else that can. It's not a romantic concept of the importance of people. It's an observation about where value is actually created and destroyed in businesses which grow. They don't fail due to poor markets. They fail because of bad decisions made under pressure by people who were not able with the knowledge to make decisions well or due to the impact of culture dynamic that was not apparent from the outside but were slowing down the company's ability to retain talent, maintain accountability, and be able to adapt to changing circumstances that the original program did not anticipate. Be aware of these risks in the early stages - before you've made a capital commitment or before the problems have intensified, before the culture has formed around the incorrect practices - is an essential task of an investor who is concerned about returns rather than just deal flow. It is difficult to identify these risks if you're spending the majority of your time analyzing the model.

The shift I'm talking about sounds simple when you state it clearly, but it requires a fundamental reorientation of what you treat as evidence. And that reorientation is harder than it sounds because it is directly opposed to the incentive structure of many investing processes. Speed is rewarded for pattern matching at the surface. Competitive deal environments reward confidence over deliberation. The way in which certain investment groups operate actively hinders what is seen as soft diligence - the kind that pays careful, patient attention to human factors that allows good business decisions to be distinguished from poor ones across significant intervals of time. I've been in enough rooms where somebody has dismissed a concern about leadership chemistry or management culture with the words "we can make it better post-close" to see how dangerous this idea is. You almost never can. It is not just a post-close issue. It's a pre-commitment fact and if you're not paying attention to it when you write the cheque You aren't doing diligence - you are doing paperwork and hoping in the end for the best.

What I look for now as I review a business or a leadership team, has become an extremely specific set of signals. How does a leader react when they're proven wrong about something? Does the leader accept the correction or just ignore it? How do they speak about those around them - do they regularly turn off credit and assume responsibility or do they take this in reverse? What can people who worked closely with them previously say in conversations that move past the formal reference check format and becomes more genuine and exploring? What happens inside the organisation at times when nobody is around or when the CEO is traveling and the quarterly objective is not going to meet the target? It is in these situations that culture exists, not in values printed on the wall or the mission statement on its website. But in the ordinary decisions that get done by everyday people in situations where the facts are unclear and the easy and the right choice aren't the same. Identifying companies in which those decisions are consistently executed well is, in my opinion the most reliable method to ensure that the returns last in the long run. Follow James Deller for more info including how developing people at scale changed what i look for about lasting impact.



Why Most Public-Private Partnerships Fail Before They Begin - And How To Fix Them
Public-private alliances have a stigma issue that's mostly made up of. The history of these arrangements is awash with projects that were announced with genuine enthusiasm and significant political capital behind them, taking up large amounts of private and public resources for long periods of time but ultimately produced outcomes that were not even a little analogy to what was promised when the partnership was created. The academic literature and the postmortem reviews that governments and institutions conduct following these failures are extensive and they concentrate in large part on the structural and contractual elements of what went wrong with the wrongly aligned incentives, an insufficient risk allocation between public and private entities and the governance frameworks which were conceived in theory but failed in practice, the procurement frameworks, which were designed to prioritize the wrong things. The thing that this type of analysis tends to miss, frequently and ultimately it's the cultural and operational dimension - the fact that private and public institutions are both distinct types of entities, formed in different ways by incentive systems that operate with different timescales, accountable to different stakeholders, and assessing outcomes in ways which are not simply different in degree but different in form. When you combine these two kinds of organisation together through a formal collaboration without performing the work, in advance and explicitly, to know and manage these differences you are not forming the conditions for a partnership. This creates the conditions to create a slow-motion collision that can be seen at the most untimely moment.
I've been involved with advisory services to assist institutions in their modernisation efforts, a number of which involve public-private partnership arrangements of various levels of complexity. The most consistent insight I have made from that experiences is that the partnerships that worked well - and actually met their stated objectives and maintained a functional working relationship between the private and public parties throughout they were not distinguished from those that did not due to the complexity of their legal structures, the precision of their risk frameworks or the seniority of the leaders who formed them. Their distinction came from the fact that the parties sitting on both sides of the table had been able to really understand how opposite side was operating before the formal partnership structure was formulated. What that means in practice is understanding the process of decision-making of each organization, the accountability structures that define what each of the parties can be able to agree on and how quickly, the definitions of success that each party will ultimately measure itself against, as well as any points that could cause tension between these definitions. None of that understanding is complicated to construct. All of it is removed in favor easier to see and accessible task of negotiating contracts and drafting governance frameworks.

The normal public-private partnership process is a gradual process from concept to concluded agreement without much focus on the issue of whether the two organisations involved are truly able of cooperating efficiently throughout the term of the partnership. The legal team negotiates the contract. Finance models the economics and risk-adjustment. The communications team prepares the announcement prior to the time of signing. The implementation team starts planning the process. In the course of this process then comes the discussion about compatibility in terms of culture and operation - about whether the individuals that will be required to interact day-to day across the boundary between the two organizations have enough common ground so as to ensure that collaboration truly collaborative rather than antagonistic, isn't likely to occur in any formal way. It is commonly assumed with no explanation, that agreements in formal form create necessary conditions for effective collaboration and that any operational or cultural disagreements will be dealt with informally as they occur. This assumption is generally incorrect, and the expense of this is usually increased according to the ambition and complexity of the collaboration.

The practical application of this analysis is that the greatest investment that a partnership between public and private create - even before the legal structures are finalized and before the governance model has been agreed upon, or before any announcement is made one consider operational alignment. This refers to specific, well-structured, and efficient process to uncover the areas where the two organisations' operating assumptions diverge, and to decide in advance the way in which those divergences are addressed before they become operational issues in the course of implementation. The most important divergences tend to be the same across various types of partnerships. In terms of speed and authority, they are almost always one of the most important differences. Public institutions are structured for slow decision-making, by utilizing multiple layers of review and approval for reasons that are legitimized and often mandated by law. Private enterprises - particularly tech companies that are based around fast iteration and quick decision-making - often see this as a fundamental obstruction to their progress. without a shared understanding of why this pace is the way it is it is and what actually be needed to alter this, the frustration that builds on the private team can ruin the relations long before the relationship is in its place.

Success metrics and what counts as progress are an additional as well as a cause for divergence. The public institutions are primarily evaluated according to process compliance, equality of the outcome among different stakeholder groups, and the evitance of public failures that bring media or political attention. Private parties are usually assessed by their efficiency, the amount of progress they have made against goals, and financial return on investment. These measurement frameworks can be made compatible with each other, but doing so requires careful planning, not just good intentions. The partnerships that do not take part in this type of structure tend to encounter, at critical points, with two partners who measure the same partnership in incompatible ways and therefore reaching disparate conclusions as to whether or not it is succeeding. The partnerships I've observed to fail the most was the ones where that misalignment was treated as something that would become apparent over time. It was the ones in which the problem had been explicitly acknowledged at the beginning. Also, developing a shared accountability model that accommodated the legitimate measurement needs of both parties requirements became an element of actual work rather than just an item on a list of things that a person could come to.}