How Working Across Industries Reinforced Operational Discipline About Performance

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The Investor-Operator Lens The Reason I Inquire About People Before I Look At The Product
A majority of investment frameworks are built around a process that begins with the market before concluding on the staff. You evaluate the size and structure of an opportunity first, then how the product is compatible with that possibility, then the competitive scenario and defensibility of the investment, and near the end of the process, you'll spend an hour with the founders and their leadership team to make sure they are competent and enthusiastic and capable of executing on your plan, which earlier study has proven. I've been working within different versions of this model for long enough to comprehend why it's been a routine across so much of the investment industry. It's structured. It results in a diligence system that can be described, compared between possibilities, and presented to shareholders and investment committees in terms that appear to be rigorous and analytical. The problem is that it is flawed at its core, which is that it treats this dimension of people as a validation measure instead of a primary filter - something which you examine at the close to confirm what your market analysis has already suggested, rather than something you test first because it is the most predictive variable in the outcome. The sequence suggests that fantastic market with an excellent team is more effective than one with a weak team. extraordinary team. Based on my experience, this is not always the case.
I changed my way of thinking after a certain period in which I observed the outcomes of the sequence's standard play out in ways that the upstream analysis did not anticipate and could not be easily explained. Excellent markets with weak or fragmented leadership teams consistently underperformed what the opportunity suggested they could deliver. Markets with exceptional teams consistently found ways to generate value that initial market size estimation and analysis of competition had not accounted for. It was a pattern that was persistent and consistent across various sectors and deals that I could not put it as a result of noise or attribute it entirely to circumstances instead of the expertise of the people at centre of each business. Once I quit arguing about it, the implication for what I should do with my diligence time was clear The point was that I ought to be focusing substantially more time understanding the people, and less on validating the market analysis that any competent analyst could develop with the same knowledge.

The questions I ask when I am conducting an assessment of a team's leadership are not the ones that appear in the typical investment checklists and diligence templates. They're questions that require real conversation and time to be able to answer correctly. What do they respond when they're proving wrong about something? Should they make amends or find a way to redirect it? How do they come to decisions when the information they have is not complete and pressure to respond is high? What is the difference there is 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 does the overall culture of the company actually look like on days when the founder is not in the building? Also, how closely does that version the culture mirror the one the founder describes when asked? This kind of question requires conversations that go beyond the pitch meeting and formal presentation of the management. They demand reference checks that are actually exploratory instead of simple exercises to confirm. They need the will for a time spent in uncomfortable areas that could reveal details that could complicate a deal you've already begun to make.

The operator aspect of my investment process is inseparable from my investor dimension, and it influences what I invest in and how I engage once I am involved. I am not a passive provider because of a temperament or training. I'm someone who's created businesses, who has had to navigate the scaling changes which are more challenging than fundraising ones which is why I've made the governance and hiring and culture-setting mistakes that you make as you navigate these shifts for the second time, and who has developed - through that direct experience - some convictions about the needs of organisations at various stages of development that a solely financial background does not give. These convictions are what make me different type of investor unlike a financial investor who is purely a financial one and draw entrepreneurs who want something different from what a purely financial investor can provide.

The founders I get along best with are the ones with a desire for a partner will help them navigate the decisions and operational changes of their financiers are not prepared to discuss in the right amount of specificity and depth. Are you able to be in the room when the governance structure needs to be changed because your company is outgrowing the one it was founded with. Who can assist in navigating the senior decision-making process at an opportune moment when the wrong decision could cost the company one year of money it would not be able to lose. Who is honest privately about the risks that no one can else in the room comfortable with. That is the kind of participation that I think creates the most unique value for the companies I invest in - not the initial capital allocation decision, which anyone of the investors could make and continue to make, but the continuous operational partnership that assists the business navigate the gap between its current position and where the initial numbers suggested it could go. Follow James Deller for site examples including why backing founders confirmed what i suspected about teams.



What Causes Most Public-Private Partnerships To Fail Before They Even Begin - And The Best Way To Fix Them
Public-private partnerships face a reputation issue that is, in large part of the time, earned. The history of these agreements is full of projects which were announced with genuine enthusiasm with a significant amount of financial backing from the political establishment, consumed significant public and private resources over long periods of time, and ultimately delivered outcomes that bear only a small resemblance to what had been initially promised when the partnership formed. The academic literature and the postmortem reports that governments and institutions conduct following the failed projects are extensive, and they focus on the major, on the structural and contractual aspects of what went wrong including the misaligned rewards, and the lack of risk-sharing between both private and public institutions, the governance structures which were conceived in theory but were not able to work in practice, the structures for procurement that decided to choose the wrong things. What this analysis tends to underweight, consistently and consequentially it's the cultural and operational element - that is, the fact that public institutions and private organisations are actually different types of entities, formed via different incentive models that operate in radically different timeframes, accountable to fundamentally different stakeholders, and assessing the success of their operations in ways that are more than just different in level however they are different in their approach. When you mix these two kinds of organizations together with a formal agreement without undertaking the work upfront and explicitly, in order to appreciate and manage the differences between them, you're not creating an alliance. You're creating conditions for a slow-motion collision which will become visible at the most untimely moment.
I have been involved as a consultant in support of institutional modernisation and improvement projects, some with public-private partnership structures at varying levels of complexity. The most consistent conclusion I can offer from that experience is that the partnerships which were successful - that actually fulfilled their stated goals and maintained an effective working relationship between the public and private parties throughout They were not distinguished from the ones that failed because of the sophistication of their legal structures or the rigorousness of their risk frameworks or the experience of the management teams that established them. Their distinction came from whether the parties who were on both sides of the table had undertaken the effort to genuinely understand how the other party operated prior to the formal partnership was agreed upon. What it means in real life is knowing the processes that each organisation operates under, the accountability structures that limit what each side can agree to and how quickly you can reach agreement on the definitions of success for each party to be measured against, and those points where there is likely to be tension between those definitions. This knowledge isn't difficult to come up with. The entire process is often avoided in favor of easier to see and recordable process of negotiating contracts and developing governance frameworks.

The typical public private partnership process moves from initial concept to executed agreement with barely any focused attention given to the issue of whether or not the two organisations involved are actually capable of working together effectively over the life of the partnership. The legal team negotiates the contract. Finance team models the economics as well as the risk-adjustment. The communications team designs the announcement prior to the time of signing. The implementation team is beginning to plan the tasks. In the course of this process the discussion turns to operating and cultural compatibility is a discussion regarding whether the people that will be required to collaborate day-to-day across the border between the two organizations have enough of the same values to make collaboration more so than adversarial - does not tend to occur in a formal manner. It is assumed, usually without being stated, that the formal agreement creates the prerequisites for effective collaboration and that any operational or cultural differences will be managed informally when they arise. That assumption is almost always false, and costs is likely to rise according to the ambition and complexity of the partnership.

The practical implication of this analysis is that the most valuable investment a public-private partnership could create - even before the legal structures are finalized, before the governance framework is agreed upon and before any announcement is made to the public - is in what consider operational alignment. By this, I mean specific, structured and facilitated activities to pinpoint the places where the organizations' operational assumptions diverge and then to establish a clear understanding of how these divergences will be taken care of before they become operational problems in the process of implementation. The factors that are most crucial to consider tend to be the exact same for different kinds of partnerships. Controlling authority and speed of decision making are typically among the most important differences. Public institutions are structured for slow decision-making, through a variety of layers of review and approval, based on reasons that are legitimate and, in many cases, legally mandated. Private businesses - particularly technology companies built on rapid iteration, and fast decisions - typically see that speed as a major hurdle to development, and in the absence of a shared understanding of why this is the way it is and the steps that would truly be needed to modify this, the frustration that is triggered on the private part can deteriorate the relationship before the partnership has found its feet.

Success metrics and what is considered in terms of progress are a separate and major cause of conflict. Institutions of the public sector are typically assessed for compliance with the process, fairness of the outcome among different stakeholder groups, and removal of any visible shortcomings that get media attention or public scrutiny. Private partners are usually evaluated on efficiency, progress that can be measured towards targets, as well as financial efficiency. These measurement frameworks can be combined However, this requires deliberate planning rather than good intentions. However, the organizations which do nothing to improve that type of design will find themselves, at critical places, with two groups who measure the same collaboration in genuinely unrelated ways and, consequently, coming to non-congruous conclusions about whether it is successful. The relationships I've seen fail most definitively were the ones where that misalignment was assumed to be resolved over time. The ones that worked were those in which the issue was identified explicitly at the beginning. Also, designing a shared accountability process that accommodated the legitimate measurement needs of both parties demands became an element of actual effort, rather than an aspect of a list things that one could eventually come to.}