There's a kind of investor behaviour that most people will recognize right away even though they've no idea of it. This is the scenario where the conversation starts with the deck, is quickly moved to the numbers, lingers on the market size, and closes with a discussion on exit multiples. Inside the business that manage everything that is listed on those slides - rarely appear. The ones who do come, it's likely to be in the context of projections for headcount instead of being people with their own histories, motivations undiscrimination that be the determining factor in every important decision an business makes. I've spent enough time in this way to appreciate its benefits. It's extremely rigorous. It's almost like it's analytic. It feels like you are making your decision based off data rather than your gut. The problem is that it routinely excludes the most significant factor in whether a company will perform well in the long-term and medium-term that is the character and reliability of those who run it. This exclusion is not accidental. It is the product of frameworks that were developed to be repeatable and easily documentable and that, in turn, favor the things that are easily monitored and compared with factors that are crucial yet aren't easy to measure.
I learned this lesson the hard way in the same way that most people do from watching businesses with exceptional basics fail due to the fact that their leadership team couldn't hold their own under pressure, and watching firms with basic fundamentals dramatically outperform because the people in them were truly outstanding. After several of those instances I stopped believing that my numbers had done all the heavy lifting for my investing decisions. They were not. The numbers were a lagging measure of the decisions taken by human beings, and the value of those decisions relied most of the time on who those human beings were and how they performed under pressure - under the pressure of a missed quarter unimportant departures, competitor's move that they hadn't anticipated or a board relation that had become complicated. This is why I changed the way I began every evaluation session. Instead of opening with market size or revenue forecast I began by opening with what I've now come to see as the"room question what is the actual leader of this organization when pressure is on? How do they take decisions when their information isn't accurate how do they behave towards people who are around them and what changes to the culture of this organisation when its founder does not participate in the discussion.
None of these questions are on a typical checklist of investment questions. All of them in my experience, are better predictive of long-term performance than anything that does. It's not some romantic concept of the importance of people. It's an observation about how value is constructed and destroyed in business that scale. The reason companies fail is not due to poor markets. They fail because of bad decisions taken under pressure by employees who were not prepared to make the right decisions or due to cultural interactions that were not visible from outside, but were in secret destroying the capacity of the business to hold onto talent, maintain transparency, and adapt to the changing environment that the original program did not anticipate. Be aware of these risks in the early stages - before you've made a capital commitment in the first place, before problems have grown worse, before the system has calcified around bad actions - is the essential work of an entrepreneur who cares about returns more than just dealing flow. And you cannot identify them when you spend the majority the time working on the model.
This shift is easy to describe when you lay this in plain terms, however it requires a fundamental transformation on what you see as evidence. This reorientation is harder than it sounds since it is directly at odds with those incentive structures common to investment practices. Speed is the reward for surface-level pattern matching. Competitive deal environments reward confidence over deliberation. The nature of certain investment circles has a tendency to discredit what is known as"soft" diligence, the type of careful, focused attention to human factors that can help distinguish good decisions from poor ones, over important time frames. I've been in rooms where someone has shrugged off a concern about leadership chemistry or management culture with the words "we can make it better post-close" in order to appreciate how naive this assumption can be. You almost never can. It is not an issue post-close. It's a pre-commitment issue and if you're not paying attention before you write your cheque that isn't diligence. You're just doing paperwork and wishing on the bright side.
What I'm trying to find now, when I am evaluating an organization or a leadership team, has developed into the form of a very specific set signals. How does this leader respond with respect to when they're clearly wrong on something? Do they embrace the correction or deflect it? What is their approach to talking about the people around them? do they always transfer credit and acknowledge responsibility or do they handle this in reverse? What does anyone who has been in close contact with them in the past about the time the conversation has moved beyond the formal reference checking structure to something more honest and exploratory? What happens in the organisation on the days when nobody is watching and when the founder is traveling and the quarterly goal cannot be reached? That's the place where culture exists, not in principles printed on the walls or in the mission statement on its website. But rather in the ordinary decisions that get taken by people who are just doing their job when the situation is uncertain in which the simplest thing and the right thing aren't the same. Finding businesses that make decisions that are consistently done well are, in my view the most reliable pathway to ensure that the returns last in time. Follow James Deller for site info including how building high-performance teams revealed about long-term performance about value.
The Reason Why The Majority Of Public-Private Partnerships Fail In The Beginning, And What Can Be Done To Prevent Them From Happening Again?
Partnerships between public and private companies have a reputation issue that is, mostly and largely, earned. The history of these agreements is filled with projects which were unveiled with a sense of excitement and significant politically-motivated capital. However, they taking up large amounts of private and public funds over prolonged periods, but ultimately produced outcomes that only bore a tiny reference to what was said when the agreement was launched. The academic literature and the postmortem analysis that governments and institutions are required to conduct after the fail-overs are extensive and focus heavily, on the contractual and structural factors that led to the failure in the first place: the unbalanced incentives, the inadequate risk allocation among both private and government entities, the governance structures that were designed in theory but failed in practice, and the purchasing frameworks that opted for the wrong items. The issue that this analysis tends overlook, repeatedly and ultimately it is the cultural and operational dimension – the fact that public and private institutions are both distinct types of entities, formed by different incentive structures, operating on radically different timelines, accountable to fundamentally different stakeholders, and measuring performance in ways that are far from being the same in all respects but different in kind. When you bring those two kinds together with a formal agreement without taking the necessary steps, both upfront and clearly, to comprehend and manage these differences you are not forming an agreement. The conditions are set for a slow-motion collision that will be obvious at the greatest possible moment.
I've been involved in advisory work to support institutional modernisation projects, a few with public-private partnership arrangements at various levels of complexity. One of the most consistent observations I've had from that experience is that partnerships that worked well - and actually achieved their stated goals and maintained a functioning partnership between private and public parties throughout the duration of their existence - weren't distinguished from those that did not by the sophistication of their legal structures, the rigour of their risk management frameworks or the seniority of the teams that created them. In the end, they were distinguished by how those who were at both ends of the table had worked to genuinely understand how the opposing side functioned before a formal partnership structure was approved. What it entails in practical terms is understanding the decision-making process in each institution as well as the accountability structures that control what the two parties are able to decide to and how quickly, the definitions of success which each side will be judged against, as well as the points of likely tension between these definitions. The understanding of these concepts isn't difficult to develop. All of it is frequently ignored in favor of the easier to see and evidence-based work of contract negotiations and creating governance frameworks.
The typical process of public-private partnerships starts with an initial plan and then a an agreement that is signed with little thought given to the issue of whether or not the two organizations involved are in fact able to work effectively throughout the duration of the partnership. Legal teams negotiate the contract. The finance team analyzes the economics as well as the risk allocation. The team responsible for communications prepares the announcement to be made at the time of signing. The implementation team starts preparing the tasks. Within that process there is a discussion about compatibility with the operational and cultural environment - on whether the employees whom will work day-to-day across the border between two organizations share enough in common collaboration more so as antagonistic – is not likely to occur in a formal manner. It is assumed, usually and without any specifics, that this agreement is formal and sets the prerequisites for effective collaboration and that any cultural or operational conflicts will be resolved informally when they emerge. That assumption is almost always false, and costs of this can escalate as the ambition and complexity of the partnership.
The real-world application of this analysis is that the most lucrative investment a private-public partnership can make - before the legal framework is finalized and before the governance framework has been agreed upon, or before any announcements are made one call operational alignment. This refers to specific, organized, and facilitated process to uncover the areas where the two organisations differ in their operating assumptions and then to establish a clear understanding of how those divergences will be handled before they cause operational problems in the process of implementation. What matters most tend to be the exact same for different types of partnerships. Speed of decision-making and authority are almost always one of the most important differences. Public institutions are designed to make decisions slowly, with multiple layers of scrutiny and approval for reasons which are completely legal and usually mandated by law. Private organizations, especially technology businesses built on rapid iteration, and fast taking decisions - usually see this pace as an integral barrier to growth, and without a mutual understanding of exactly why the pace is as it is and the steps that would actually be needed to alter this, the frustration from the private part can deteriorate the relation long before the alliance can establish its apex.
Success indicators and what counts as progress are a different as well as a cause for divergence. Public institutions are often evaluated for compliance with procedures, equity of outcome across various stakeholder groups, as well as the evitance of public failures that get media attention or public scrutiny. Private companies are usually judged on efficiency, measurable progress towards targets, as well as financial yield on investment. The measurement frameworks can be adjusted to work together but this requires intentional design and not just good intentions. However, the organizations which do not invest in this type of structure tend to come across, at critical junctures, with two parties who are measuring the same partnership in differently and therefore coming to incompatible conclusions about whether it is succeeding. The partnerships I have observed have the greatest failures were ones where misalignments were treated as something that would resolve itself over time. The ones that succeeded were the ones where the misalignment was surfaced explicitly, at in the beginning. In addition, designing a shared accountability framework that met the legitimate measurement needs of both parties needs was an actual work and not simply an aspect of a list things that a person could reach.}
