There is a version of investor behavior that people immediately recognize, even if they have never been able to name it. It's when talks begin with a deck, is quickly moved to numbers, and then lingers over the size of market and is concluded with a discussion of exit multiples. The business's employees - the ones who will take the initiative to implement what is on those slides - barely come up. When they are, it tends to be within the context of headcount projections rather than as individuals with histories, motives in addition to blind spots that shape every significant decision the organization takes. I've worked for enough time with this mindset to understand its benefits. It feels rigorous. It's an analytical feeling. It's like taking a decision based on evidence rather than instinct. The problem is that it continuously excludes the most reliable factor in how a business will actually perform over its long and intermediate term the character and integrity that the company's management team has. It isn't a coincidence. It's the result of frameworks designed to be documentable and repeatable and that, in turn, favor things that are able to be measured and compared over the objects that are really important and difficult to quantify.
I learned this the hard-way, like most people, by watching businesses with exceptional fundamentals underperform because the leadership team couldn't hold their own under pressure, and by watching firms with basic base perform dramatically higher because the employees within them were truly exceptional. After experiencing enough of those situations, I stopped pretending that the numbers were doing the heavy lifting in my investment decisions. They weren't. The numbers were a poor indicator of the decisions made by human beings, and the quality of those decisions depended substantially on who these human beings were and how they acted when under stress - under the pressure of a missed quarter, unimportant departures, competitor's move that they hadn't anticipated or a board connection that had grown complicated. This is why I changed the way I began every evaluation session. Instead beginning with the size of the market or revenue trajectory, I started opening with what I consider as the question in the room: who manages this company when pressure is on? How can they make the right decisions when the data is not accurate and what is their attitude towards others around them and what happens to the culture your company if the founder isn't in the room.
None of those items are on a checklist of standard investments. Each of them, according to my observation, tend to be better reliable in predicting the performance of the future than everything else. That is not a romantic idea of people being valuable. It's an observation of the places where value is made and destroyed by companies with a large scale. The reason companies fail is not because of poor markets. They fail because of bad choices made under pressure from people who were not trained to take the correct decisions, or because of cultural interactions that were not visible from external observers but gradually destroying the ability of the organization to retain talent, hold the accountability of its employees, and adjust to circumstances that the original plan could not anticipate. Identifying those risks early - prior to committing capital and before the issue has grown worse, before the system has been shaped around the wrong ways of doing things - is a crucial job of an investment manager who really cares about results rather than just deals flow. But you can't spot them by spending the majority or all of your time studying the model.
The change I'm describing is easy to describe when you lay the concept clearly, but it requires an utter reorientation of the information you use as evidence. Reorienting is more difficult than it appears since it is directly in opposition to the incentive structure of many investments. Speed is a reward for pattern matching at the surface. Competitive deal environments reward confidence over deliberation. The culture of certain investment circles actively discourages what's referred to as"soft due diligence" - the kind of carefully focus on human factors that allows good business decisions to be distinguished from bad ones on significant intervals of time. I have sat in enough rooms where somebody has put aside a worry about management chemistry or leadership by saying "we have the ability to correct it after closing" to realize how risky that notion can be. You almost never can. Culture is not an issue post-close. It's a pre-commitment fact and if you're not paying attention prior to you sign your check and you're not doing diligently - you're just doing paperwork and wishing at the very best.
What I look for now in evaluating the performance of a leader or team, has developed into a specific set signals. How does a leader react in the event that they are proven wrong regarding something? Do they accept the correction or deny it? What are their thoughts on their colleagues - do they consistently shift credit and accept responsibility, or do they do it the opposite way? What do people who have worked closely with them previously say in conversations that move beyond the formal reference checks form and becomes more genuine and inquisitive? What happens at the organisation during the times when no one is looking and when the Founder is traveling and the quarterly goal is not going to meet the target? The place where culture exists - not in values printed on the wall or the mission statement on the site but rather in the daily decisions taken by the everyday person in situations where the facts are unclear as well as when the easy thing and the right choice aren't the same. Finding companies where these decisions are consistently executed well is, in my experience the most secure path to returns that hold up for a long time. Read James Deller for blog examples including why building companies taught me about the long game.
What Football Academies Get Right That Many Corporate L&D Programs Do Wrong
The best football academies in these days are if you consider them operationally rather than romantically, extraordinarily sophisticated development organisations. They take young people at seven or eight years old - and sometimes earlier - well before people have a clear understanding of what they're capable of or who they wish to be. they mentor them consistently and thoughtfully over what can be 10 years or more for a period of time, gaining more than just the technical ability required by professional football, but the character, the psychological toughness, the ability to take decisions under pressure, and the interpersonal and social sophistication that performing at the highest quality of football demands. The success rate, calculated by the percentage of players who go all the way to professional football, is very low. However, the approach that the most successful academies employ is, in many aspects that are crucial to the development of human capacity, more thorough to be patient, more patient, as well as more intentional than anything I've experienced in corporate learning and development. The gap between what Academies are doing and what companies do when attempting to develop their people inside their academies is fascinating and instructive after spending time studying both.
Most fundamentally, the difference lies in how time is viewed. The corporate learning and development programs tend to be designed around short-term interventions. This could be a program that runs for two days, a workshop series lasting a quarter, the coaching relationship that lasts up to six months. The logic behind this is quite clear but difficult to justify strictly in terms of financials. Organisations need to show return on their development investment within the timeframes budget cycles and reviews impose and, in turn, short interventions are significantly less difficult to justify and quantify when compared to long ones. But the timing on which important human development actually takes place the timeframe on which new frameworks, new behaviours and capabilities are really absorbed instead of conceptually understood and applied has little or no connection to the timeline of the typical Corporate L&D intervention. The top football academy schools understand this in a way that is embedded in the foundation of their programme of development across generations. They do not believe that a youngster can learn the new framework for decision-making after attending a weekend seminar. They expect internalisation to be gradual and have designed the environment accordingly. years of continuous reinforcement and being put in situations that test the framework and demand it to be applied under real pressure, years of feedback that is precise enough to impact behaviour instead of generic enough to disappear immediately.
The second major difference is the incorporation of development into the operation itself, rather than its separateness from it. If a football club is properly designed and training facility, development is not something that takes place in a specific time apart from the actual play as well as the training that is an integral part of the institute. It happens through the playing and training. The training sessions are designed specifically with the purpose of development in mind not just the performance targets. The challenges that participants are presented with are selected in part for their impact on development, and not only for their practical utility. In the moment, feedback will be precise and rooted in what just happened rather than abstract and suitable. The connection between the things that happen in training and the information that will be expected during match situations will be made clear and continuously to be reinforced. In most corporate organisations, by contrast, development and operational work are regarded as categorically distinct activities. You enroll in the learning programme. You attend the workshop. The workshop is followed by a coaching session. Then you go back to your current job, where the incentive structures, standards of conduct, the pace of work, as well as the pressures of the delivery process are almost identical from what they were prior the intervention for development, and where these new structures and norms that were imposed in the development environment slowly erode since there is no logical means of integrating them into the process by which work gets completed.
The businesses that are able to develop people most effectively are the ones that have discovered a way to keep development continuous and contextual rather than the abstract and sporadic. Within those organisations where the line is drawn between empowering individuals and working is really difficult to recognize as the operational context has been created with development objectives in mind. feedback mechanisms are integrated into the daily rhythm of work instead of being reserved for periodic formal assessments, the challenges people are given are selected for the purpose of what they'll need people to acquire and grow more effective, and the behavior of leaders consistently indicates that growth is appreciated and desired rather than being something that occurs in specific programming and then comes to an end. Building that kind of environment requires a unique set of organization-specific design decisions than the ones most organisations make when they think about training and development. Furthermore, it requires leadership commitment to last for a long which most organizations find difficult to continue to. It also produces outcomes for development unlike the episodic approach to programme design that can't duplicate.
The third factor in which superior academies fare better than the majority of corporations is their ability to take the development of character seriously and make it an organizational goal. The majority of corporate L&D programs deal only in passing with character. It is part of what they teach about leadership and communication, but it is not often explicitly mentioned and never pursued with the commitment as well as the patience that true character development demands. The top football academy do not consider character to be something that players have or lack, or as something which will emerge on its own after enough time. They treat it as a thing that can be cultivated through the right environment and the appropriate types of challenge and adversity and a good relations between players and coaches with a characterised relationship that includes genuine concern for the player with genuinely high expectations for what the player is ready to develop into. The combination of care and challenge held together consistently over time is, at my point of view the most effective method for building character. It is used in football academies. It's used by technology companies. It's a great fit in any organization that will invest in it with the patience and perseverance it demands.}