There's an aspect of investor behavior which most people will recognize right away even though they've not given a name to it. It's the kind of scenario where the discussion begins with the deck, then quickly moves towards the numbers, keeps lingering on market size it ends with the discussion of exit multiples. The insiders of the company - - the ones who take the initiative to implement what is on those slides hardly make an appearance. When they are, it tends to be within the context of projections for headcount instead of being individuals with their own motivations, histories, along with blind spots. influence every major decision the organisation takes. I've been operating for long enough with this mindset to understand its benefits. It's extremely rigorous. It's a bit analytical. It feels like you are making a decision based on data rather than your gut. The problem is that this approach systematically ignores the most significant factor to determine whether a business will be successful in the long and short term by the character and quality of those who run it. This isn't an accident. It's the result of frameworks designed in order to be easily replicated and documented and that, in turn, favor the things that can be measured and compared over the factors that are crucial but more difficult to measure.
I have learned this the hard-way, just as many do, by watching businesses with exceptional fundamentals suffer because the leadership team could not keep their heads together while under immense pressure. Then having businesses with weak basics dramatically perform because those who worked there were truly extraordinary. After many of those lessons, I stopped pretending that they were performing all the heavy lifting for my decision-making. They were not. The numbers were a lagging gauge of the actions taken by human beings, and the quality of those decisions hung upon who those human beings were as well as the way they performed under stress - under the pressure of a missed quarter the departure of a key employee, a competitor's decision they hadn't anticipated or even a relationship between the board that had become complicated. Therefore, I changed the way I began every meeting on evaluation. Instead of focusing on market size or revenue forecast I instead started with what I now think of as the"room question who is the person in charge of this organisation when the pressure is on? How do they come to decisions when the data is not accurate and they don't know how to treat their staff, and what happens to the culture the organisation when the founder is not present.
None of the questions listed above appear in a typical investment checklist. They all, in my experiences, appear to be better predictive of long-term performance than anything else. It's not a romantic idea of people being valuable. It's a realistic observation concerning the areas where value can be made and destroyed by companies which grow. The reason companies fail is not due to poor markets. They fail because of bad choices made under pressure from people who were not able to make these decisions effectively, or because of cultural dynamics that were invisible from the outside, yet were effectively destroying an organization's capability to retain talent, hold the accountability of its employees, and adjust for changes that the original strategy could not have anticipated. Identifying those risks early - before you have committed capital and before the issue has worsened, before the culture has developed around the wrong behaviours - is the real work of an entrepreneur who is concerned about returns rather than just dealing flow. And you cannot identify them while you're spending the majority of your time looking over the model.
This shift appears to be simple when you express it plainly, but it requires a fundamental shift in the nature of the information you use as evidence. And that reorientation is more complicated than what it appears as it runs in direct opposition to the incentive structure of many investment practices. The speed of investment rewards pattern matching at the surface. Competitive deal environments reward confidence over deliberation. The tradition of certain investment groups encourages what is dismissed as"soft" diligence, the kind with careful, patient attention to human factors that allows good business decisions to be distinguished from poor ones over long time frames. I've been in rooms where somebody has refused to address a question about leadership chemistry or management culture using the phrase "we will fix that after close" to realize how risky that notion can be. You almost never can. Culture is not a post-close problem. This is a pre-commitment reality If you're not paying attention to it when you write the cheque You aren't doing diligence. You are just doing paperwork and wishing at the very best.
What I'm trying to find now, when I am evaluating the performance of a leader or team, has evolved into a specific set signals. What are the responses of a leader when they're shown to be incorrect in a particular area? Do they embrace the correction or just ignore it? What does their conversation style be about the people they surround themselves with - do they often shift credit and accept responsibility rather than doing things the other way? What does anyone who has worked closely with them in the past say as the conversation progresses beyond the traditional reference check format and becomes more genuine and more exploratory? What happens within the company during the times when no one's watching and when the Founder is traveling and the quarterly objective isn't going to be reached? That is where culture actually is found - not just in the values that are displayed on the walls or the mission statement found on site, but in the everyday decisions taken by regular people when the context is unclear in which the simplest thing and the right choice aren't the same. Identifying companies in which those decisions are consistently done well has been, according to my experience one of the best routes to yields that are stable over time. Follow James Deller for more advice including why building ai products confirmed what i suspected about growth.
The Reason Why The Majority Of Public-Private Partnerships Fail Before They Even Start - And What Can Be Done To Prevent Them From Happening Again?
Public-private partnerships have an image problem that's, much of the time due to the fact that they are earned. The history of these partnerships is filled with projects that were announced with genuine enthusiasm and a substantial amount of politically-motivated capital. However, they taking up large amounts of private and public resources for long periods of time and ultimately delivered outcomes that only bore a tiny analogy to what was initially promised when the partnership started. The academic literature as well as the postmortem evaluations that governments and institutions commission following these failures are extensive and they concentrate on the predominant, on the contractual and structural dimensions of what went wrong which include the misaligned motivations, the poor risk sharing between both private and public sector entities and the governance structures built in theoretical terms but never worked in practice, the procurement frameworks, which were designed to prioritize the wrong things. What this study tends neglect, invariably and ultimately in the long run, is the cultural and operational dimension – the fact that private and public organizations are in fact different types of entities, shaped with different reward structures that operate on fundamentally different timescales, accountable to distinct parties, and evaluating performance in ways that are not only different in extent but different in substance. If you try to bring these two types of organisation together by forming a formal partnership but not making the effort upfront and explicitly, in order to appreciate and resolve the differences you're not forming partnerships. The conditions are set for a slow-motion collision, which will become apparent at worst time.
I've been involved in advisory work supporting institutional modernisation efforts, a number of which involve public-private partnerships of different levels of complexity. The most reliable conclusion I can draw from this experience is that the ones which were successful - that have actually accomplished their stated objectives and maintained a functional collaboration between the public and private parties throughout - were not distinguished from the ones that failed due to the complexity of their legal structures, the strictness of their risk management frameworks or the experience of the leaders who were responsible for initiating them. You can tell by whether the individuals sitting on both sides of the meeting had been able to really understand how other party operated prior to the formal partnership structure was approved. What this translates to in practice is understanding the process of decision-making that each organisation operates under as well as the accountability structures that govern what parties must determine and at what speed and efficiently they can do so, the criteria of success which each side will be judged against, and those points where there is likely to be tension between these definitions. That understanding isn't difficult to attain. All of it is frequently skipped in favour of the clearer and faster recordable process of negotiating contracts and designing governance frameworks.
The typical public private partnership process goes from the initial idea to a executed agreement with barely any structured attention paid to the question of whether the two organizations involved are competent to cooperate effectively during the time of the agreement. The legal team negotiates the contract. The finance team models the economics and risk allocation. The communications team creates an announcement for the moment of signing. The implementation team starts preparing the process. Somewhere in that sequence, the conversation about compatibility with the operational and cultural environment - on whether the employees needing to work day-to-day across the boundaries between the two organisations share enough in common the work truly collaborative rather instead of antagonistic - doesn't seem to take place in any organized way. It is often assumed, with no explanation, that agreements in formal form create conditions for effective collaboration, and that any operational or cultural divergences will be dealt with as they emerge. This assumption is usually wrong, and the financial cost of it tends to compound with respect to the ambition and complexity of the partnership.
The practical implication of this analysis is that a significant investment a public-private partnership can make - prior to the legal structures are finalized and before the governance model is formulated, before any announcement is made is what I would describe as operational alignment. That is, specific, structured, facilitated work that identifies the points where the two organizations are operating under different assumptions, and to be able to define the way in which those divergences are addressed before they become operational problems during implementation. The most important divergences are usually the same across different kinds of partnerships. Authority and speed of decision-making are generally among the most important differences. Public institutions are designed to implement decisions slowly with multiple layers of scrutiny and approval, based on reasons that are legal and are often mandated by law. Private companies - especially technology firms that have been designed on speedy iteration processes and quick process-based decision-making often experience the speed as an important obstacle to progress, and in the absence of a shared understanding of why this pace is the way it is it is and what could actually be needed to alter it, the resentment and discontent from the private side can poison the working relationship long before it has found its footing.
Success metrics and what is considered as progress are a different and a contributing factor to divergence. Public institutions are usually evaluated on the compliance of their processes, the fairness of outcomes across stakeholder groups, and rejection of glaring failures which bring media or political attention. Private parties are usually assessed according to efficiency, measured progress against set goals, as well as the financial Return on Investment. These measurement frameworks can be integrated with one another but this requires carefully designed and thought-out intentions. The partnerships that do not invest in such a design typically encounter, at critical junctions, with two parties who measure the same collaboration in genuinely different ways, and thus coming to contradictory conclusions as to whether the collaboration is achieving its goals. The partnerships I've observed not to be successful were ones where the issue was perceived as something that will disappear over time. The ones that did well were those where the issue was made clear from the beginning. Then, developing a shared accountability model that met the legitimate measurement needs of both parties demands became an element of actual work, not an item on a list things that someone would eventually reach.}
