What Operating at Scale Revealed About Long-Term Performance About Value

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The Investor-Operator Lens How I Ask About People Prior To Looking At The Product
A majority of investment frameworks are built around a pattern that starts in the marketplace and ends on the staff. You look at the size, and structure of an opportunity first, then how the product can be considered part of that market, followed by the competitive landscape and the legitimacy of the decision, and in the final stages of the process, you'll spend an hour with the founders and their management team to ensure they're motivated and competent and able of executing the plan which the previous analysis has proved. I've operated within various versions of this framework for a long time enough to appreciate why it's become a common practice across so much of the world of investment. It's very systematic. It results in a diligence system that can be described, compared between possibilities, and presented to investment committees and limited partners in terms that feel rigorous and thorough. The problem is that it has a structural flaw in its fundamentals, which is that it treats the people component as a validation process instead of a primary filter - something you do at the very end to confirm what the market analysis had already suggested instead of an element you examine first as it is the primary significant factor that determines the outcome. The method suggests that a successful market with a savvy team is superior to the average market with an outstanding team. My experience is that this is often the reverse.
My approach changed after a specific period of seeing the results of the sequence's standard play out in ways that the downstream analysis hadn't anticipated and could not be easily explained. The best markets with the weakest or most fragmented leaders always underperformed what the opportunities suggested they could deliver. Terrible markets with truly outstanding teams constantly found ways to create value that the initial market sizing, as well as the competitive analysis had not captured. This pattern was consistently observed and consistent across different industries and deals that I was unable to explain it as noise, or attribute it entirely to circumstances instead of the competence of the team members at the in the middle of each company. After I stopped explaining it away then the meaning of the way I allocate my time for diligence was obvious It was that I should focus most of it understanding the people involved, and less on confirming the market analysis that a knowledgeable analyst could 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 the types of questions you find on typical investment checklists or diligence templates. They're questions that need real conversations and real time to properly answer. How will this leader respond when they're clearly wrong - do they make amends or figure out a way to redirect the situation? What do they do even when their information is inadequate and pressures to be a good leader is high? What is the gap or a gap between the way they describe their leadership style and how those who have been closely with them describe their experiences of working under them? What is the culture of the business actually look like on days when the founder isn't in the office, and how closely does that aspect of the culture match up to the one the founder is describing when asked? These are questions that require discussions that go far beyond pitch meeting and formal management presentation. They will require references that are genuinely exploratory rather than an exercise in confirmation that is merely a matter of. They require you to take a risk and be in a terrain that could expose information that complicates a deal that you've already started to seek.

The operator dimension of my investment philosophy is inseparable from my investors' dimension. It determines what I invest in as well as how I engage once I am involved. I do not consider myself a passive capital service provider by nature or training. I am a person who has built organisations, who has been through scaling transitions that are more difficult than the fundraising ones and has made the governance and hiring and culture-setting mistakes that you make as you navigate these changes for the first and has developed through this direct experience the convictions of the requirements of organizations at different stages of development and that a strictly financial background will not provide. Those convictions make me a different type of investor rather than a traditional financial investor, and they attract founders seeking something different than the kind of investment that a solely financial investor can provide.

My favorite founders to work with are the ones who want a partner who can help them think through the operational transitions and decisions they face that financial stakeholders are not capable of engaging with at the appropriate level of depth and detail. Someone who can be in the room whenever the governance system needs change because the business has outgrown one it was founded with. Who can assist in navigating a senior leadership decision at time when the wrong decision could cost the company the twelve months it is unable to lose. One who can talk regarding strategic risks that nobody else is comfortable raising. That is the kind of participation that I think creates the most distinct value in the businesses I back and not just the initial capital allocation decision, which any investor could make however, but the ongoing operational partnership that helps companies bridge the gap between its current position and where it was in the beginning, as early figures suggested it could go. View James Deller for website info including how a career in business shifted my priorities about culture.



How Public-Private Partnerships Can Fail When They First Begin - As Well As How To Resolve Them
The public-private partnership has an image issue that's for the most part made up of. The past of these agreements is filled with projects which were announced with genuine enthusiasm and substantial investment in political capital, consume significant private and public assets over a prolonged period of time and eventually produced results that bear only a small analogy to what was initially promised when the partnership first announced. The academic literature as well as the postmortem evaluations that governments and institutions commission after these failures are extensive, and they concentrate in large part, on the contractual and structural elements of what went wrong including the misaligned rewards, the ineffective risk-sharing between public and private entities as well as the governance systems that were designed in the theory but did not function in practice, the structures for procurement that decided to choose the wrong things. What this approach tends to overestimate, systematically and in a way to the detriment of culture is the operational dimension. It is the reality that public and private organizations are in fact different types of entities, shaped from different incentive mechanisms, operating with different timescales, accountable to a variety of stakeholder groups, and evaluating their success in ways that are more than just different in level however, they differ in the way. If you attempt to bring these two types of organizations together in a formal partnership without undertaking the work upfront and explicitly, to understand and work with those differences, you're not forming one. You are creating the conditions for a slow motion collision that could be apparent at the most inconvenient time.
I've been involved in advisory work supporting institutional modernisation initiatives, some of which have involved public and private partnership structures at varying levels of complexity. The most consistent conclusion I can offer from that experience is that the ones that were successful - those that have actually accomplished their stated goals and maintained an effective collaboration between the private and the public They were not distinguished from those that failed due to the complexity of their legal structures, the precision of their risk management frameworks or the experience of the leaders who formed them. There was a distinct difference in how the participants from both sides of the table had the opportunity to fully understand how the other side operated before the formal partnership was agreed upon. What does that mean in reality is understanding the process of decision-making that every organization is operating under accountable structures that determine what each partner can determine and at what speed it can be agreed upon, the definitions of success which each side will be judged on, and any points that could cause tension between those definitions. None of that understanding is challenging to achieve. All of it is routinely skipped in favour of the most visible and easily recordable process of negotiating contracts and drafting governance frameworks.

The typical public-private partnership goes from the initial idea to a concluded agreement without much systematic attention being paid to question of whether the two parties involved truly able of cooperating efficiently over the course of the arrangement. The legal team negotiates the contract. The finance team model the economics and risk distribution. The communications team plans on the announcements for the moment of signing. The implementation team starts preparing the project. At some point the conversation turns to operating and cultural compatibility is a discussion regarding whether the people needing to work day-to-day across the divide between the two organizations share enough similarities to allow the work truly collaborative rather as antagonistic – is not likely to occur in a formal manner. It is usually assumed, without being stated, that the formal agreement creates the foundation for collaboration and that any cultural or operational issues will be resolved informally as they develop. That assumption is almost always wrong, and the cost is likely to rise according to the ambition and the complexity of the partnership.

The practical result of this analysis is that the most beneficial investment that a partnership between public and private make - before the legal structures are finalised as well as before the governance framework is agreed upon, prior to any announcement is made one would call operational alignment. This refers to particular, structured, facilitated efforts to identify the areas where the two organisations have different operating assumptions and to agree explicitly on the manner in which these divergences should be controlled before they turn into operational issues in the course of implementation. What matters most are typically the same across various types of partnerships. Authority and speed of decision-making is almost always one of them. Public institutions are structured to be slow in making decisions, by utilizing multiple layers of review as well as approval, for reasons that are legitimate and, in many cases, legally mandated. Private businesses - particularly technology companies that are based on rapid iteration, and fast decision-making - frequently experience this as a fundamental obstacle to progress, and there is no consensus about why this pace is the way it is it is, and what's need to be changed to improve it, the resentment and discontent that can be felt on the personal side can undermine the relation long before the alliance is able to establish its foundations.

Success metrics and the criteria for judging in terms of progress are a separate and important source of discord. The public institutions are primarily evaluated according to process compliance, equality in the outcomes among stakeholder groups and the reduction of the risk of failings that attract political or media attention. Private entities are primarily evaluated on their efficiency, progress measured towards goals, and Return on Investment. These measurement frameworks can be constructed to be compatible However, this requires carefully designed and thought-out intentions. And the ones which don't invest in the design of the framework tend to end up at moment, with two organizations who measure the same collaboration in genuinely not compatible ways and hence coming to different conclusions about whether or not it is achieving its goals. The relationships I've seen are the ones where the issue was assumed to take time to resolve. The ones that were successful were those where the issue was made explicit, from the beginning. Also, designing a shared accountability framework that accommodated both parties' legitimate measurement needs was an actual work rather than an option on a wish list of things that a person could get to.}