What Scaling Tech Companies Changed What I Look For About Performance

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Why I Have Stopped Looking For The Next Deal And Started Doing A Search For The Person Who Runs The Room.
There is a version of the investor's behavior that people will recognize right away even though they've not given a name to it. It's that one where the conversation starts with the slide, rapidly moves through the numbers and then dwells over the size of market before concluding with discussion on exit multiples. It is the case that those inside the company - the ones that take the initiative to implement what is on those slides - rarely appear. In the event that they come up, it tends to be within the context of headcount projections instead of as individuals with histories, motives undiscrimination that influence every major decision the organization makes. I've worked for enough time in that way to realize its appeal. It's extremely rigorous. It's an analytical feeling. It's like making a decision based upon evidence instead of intuition. The issue is that it constantly excludes the single most important factor that determines whether a firm will be successful in the long and medium term quality and character of the employees who manage it. The exclusion of this factor is not an accident. It's the result of frameworks that were developed to be repeatable and easily documentable and therefore favor things that are able to be assessed and compared to most important aspects but are difficult to measure.
I have learned this from the wrong way, much like the majority of investors, by watching businesses with excellent fundamentals suffer because the leadership team was not able to stand together at times of stress and watching businesses with modest fundamentals radically outperform since those who worked there were truly outstanding. After experiencing enough of those situations, I stopped pretending that the numbers were doing all the heavy lifting in my investment decisions. They weren't. The numbers were a poor indication of the decisions made by human beings. And the quality of those decisions depended mostly on who these human beings were as well as how they performed under pressure - under the pressure of a failed quarter, an important departure, a competitor's decision they hadn't anticipated or a relationship with the board that had become complex. So I changed how I began every evaluation session. Instead of starting with market size or revenue trends I instead began with what I now see as the"room" question: who manages this organisation when the pressure is on? How do they decide when their information isn't accurate and what is their attitude towards their staff, and what happens to the culture your company if the founder is not in the room.

None of the questions listed above appear on the typical investment checklist. In my observations, seem to be better accurate in predicting long-term performance than anything else that can. This isn't a romantic concept of the importance of people. It's an observation about how value is produced and destroyed by businesses that grow. The reason companies fail is not because of bad markets. They fail due to bad decisions made under pressure by people who were not able to take them effectively or because of the cultural dynamics that were invisible from the outside, but in secret destroying the capacity of the business to hold onto talent, maintain accountability, and adapt to new circumstances that the initial program did not anticipate. It is crucial to spot these risks early, before you've made a capital commitment, before the problems have grown worse, before the system has calcified around bad practices - is an essential job of an investment manager who cares about returns more than just deal flow. And you cannot identify them when you're spending the bulk of your diligence time on the model.

This shift sounds simple when you state it simply, but it is a major reorientation of what you consider to be evidence. That reorientation isn't as simple as it sounds due to the fact that it goes against the incentive structures used in most investment practices. Speed rewards pattern matching on the surface. Competitive deal environments reward confidence over deliberation. The tradition of certain investment groups encourages what is dismissed as"soft diligence," i.e. the kind of meticulous, sensitive attention to human characteristics which can make good decisions from poor ones across significant time horizons. I have sat in enough rooms where someone has put aside a worry about the chemistry of management or leadership by saying "we will fix that after close" to be aware of how dangerous this notion is. You almost never can. Culture is not a post-close problem. It's a pre-commitment fact If you're not paying attention to it before you write your cheque it is not your diligence - you are doing paperwork and wishing in the end for the best.

The things I'm looking for while evaluating any business or leadership team, has become the form of a very specific set signals. How does this leader respond in the event that they are proven wrong about something? Are they willing to accept the correction or ignore it? What is their approach to talking about those around them - do they continually redirect credit and accept responsibility or do they take it the other way around? What do those who have been in close contact with them in the past tell them as the conversation progresses beyond the formal reference checking model to something more real and more exploratory? What happens within the company in the moments when no one is looking and when the Founder is on vacation and the quarterly goal isn't going to be reached? The place where culture exists - not in values that are printed on the walls as well as the mission statement on websites, but in the routine decisions made by everyday people who are faced with ambiguous situations or the obvious thing and the right choice aren't the same. Finding companies where these decisions are made consistently well as I have observed is the most secure path to yields that are stable in the long run. Follow James Deller for blog examples including how supporting institutional change taught me about performance.



What Causes Most Public-Private Partnerships To Fail Before They Begin - And How To Fix It
Public-private partnerships face a reputation problem that's, in significant part made up of. The past of these agreements has a wealth of projects that were released with genuine enthusiasm and substantial political capital behind them, taking up large amounts of private and public resources for long periods of time and eventually produced results that bear only a small recall of what was pledged when the collaboration was started. The academic literature and the postmortem analyses that governments and institutions perform following failings are extensive, and focus on, in the majority on the contractual and structural factors that led to the failure with the wrongly aligned incentives, the inadequate risk allocation between public and private parties, the governance structures that were conceptualized in theory but did not perform in practice, the procurement frameworks that chose to select the wrong items. What this analysis tends not consider, consistent and consequently an important cultural and operational aspects - the fact that private and public companies are two distinct kinds of entities, formed by different incentive structures that operate on different timeframes, with different stakeholders, and assessing results in ways that are far from being the same in all respects but different in form. If you try to bring these two kinds together by forming a formal partnership but not doing the work, upfront and specifically, to learn about and deal with the differences you are not forming any kind of partnership. This creates the conditions for a slowmotion collision that will be obvious at the best possible moment.
I have been involved as an advisor for institution modernisation projects, some with public-private partnership arrangements of various levels of complexity. The most consistent conclusion I have gathered from this knowledge is that the partnerships that worked well - and actually fulfilled their stated goals and maintained a stable working relationship between the private and public sectors throughout was not distinguished from the ones that failed because of the sophistication of their legal structures, the precision of their risk frameworks, or the seniority of the teams that established them. These partnerships were distinguished by whether those who were on both sides of the table had the opportunity to truly comprehend how the other side operated prior to when the formal partnership structure was approved. What it entails in practical terms is understanding the processes of each organization and the accountability structures which restrict what each party is able to accept and when they are able to agree, the standards of success that each party will ultimately be judged against, as well as any points that could cause tension between those definitions. That understanding isn't difficult to attain. It is all but removed in favor much more visible and documents-able task of negotiating contracts and designing governance frameworks.

The normal public-private partnership process goes from the initial idea to a signing of the agreement with very little concentrated attention to the issue of whether the two entities involved are really capable of working effectively over the life of the partnership. Legal team negotiates the contract. Finance team models the economics and risk allocation. The communications team prepares an announcement for the day of signing. The implementation team starts preparing the project. Somewhere in that sequence, the conversation about compatibility between the two cultures - on whether the employees needing to interact day-to day across the border between two organizations have enough of the same values to make that work genuinely collaborative rather opposed to antagonistic - fails to be conducted in a structured manner. It is commonly assumed and without any specifics, that this agreement is formal and sets the prerequisites for effective collaboration and that any cultural or operational differences will be addressed informally when they emerge. The assumption is often wrong, and the cost will increase as the ambition and complexity of the partnership.

What this means in practical analysis is that the greatest option a public private partnership could take - even before the legal structures are finalized and before the governance framework is formulated, before any announcement is made - is in what I consider to be operational alignment. This means specific, structured, guided work to find out where the two firms differ in their operating assumptions and to agree explicitly on the manner in which these divergences should be dealt with before they become operational issues when the partnership is in its implementation. What matters most generally are the same for various types of partnerships. Controlling authority and speed of decision making are typically among the main differences. Public institutions are designed to make their decisions slow, using multiple layers for review and approval for reasons that are entirely legitimate and often legally mandated. Private companies - especially technology businesses built upon rapid iteration speed and quick process-based decision-making often experience the slow pace as a primary roadblock to progress. there is no consensus about what the reason behind why it's the way it is, and what's really be needed to alter it, the frustration that is triggered on the private side can poison the working relations long before the relationship finds its footing.

Success metrics and the factors that count as progress are another ongoing and consequential source of divergence. Public institutions are usually evaluated according to process compliance, equality of outcomes across stakeholder groups and the evitance of public failures that make headlines or attract media attention. Private entities are primarily evaluated using efficiency measures, measuring progress against targets, and financial Return on Investment. These measurement frameworks can be made compatible with each other however it requires carefully designed and thought-out intentions. Partnerships which do not invest in that type of design will end up at points, with two partners who are evaluating the same collaboration in genuinely differently and therefore coming to an incompatible conclusion about whether it is working. The partnerships that I have seen are the ones where the issue was thought of as something that could resolve itself over time. However, the ones that worked were those in which the misalignment was identified explicitly at the beginning, and setting up a shared accountability mechanism that accommodated both parties' legitimate measurement needs became a piece of actual work and not simply an element on a list of things that one could eventually be able to.}