Why Building in Stealth Taught Me About Success

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The Investor-Operator Lens Why I Do My Research About People Before I Look At The Product
Most investment frameworks are built around a sequence that starts with the market then finishes to the core team. You analyze the size and structure of an opportunity first, then the degree to which your product fits into that market, and then you look at the competitive landscape, and finally the saftey of the proposition, and in the final stages of the process, it is time to spend some time with the founders and their leadership team to ensure that they're competent and focused and are able to implement the plan that the earlier study has proven. I've worked with versions of this framework for long enough to see why it's become a common practice throughout the investment world. It's systematic. It produces a diligence process that can be traced, compared across different opportunities, and explained to shareholders and investment committees using terms that sound rigorous and scientific. The issue is that it is flawed at its root, which is that it views the people component as a validation measure rather than being a primary factor - something you look over at the conclusion to confirm what the market analysis has already concluded instead of something you evaluate first precisely since it's a highly influential factor in the end result. This implies that a superior market that has a strong team is more effective than unprofessional markets with an outstanding team. From my experience, this is often exactly backwards.
I changed my approach after a specific period of observing the results of the conventional sequence play out in ways that the downstream analysis did not anticipate and could not easily explain. Excellent markets with inadequate or asymmetrical leadership teams regularly failed to deliver what the market suggested they would deliver. Moderate markets with exceptional teams always managed of creating value that initial market sizing and the competitive analysis did not capture. It was a pattern that was persistent and consistent across different sectors as well as different kinds of deals, which I was unable to explain the pattern as just noise, or attribute it to the environment instead of the expertise of the employees at the in the middle of each company. When I had was done explaining the pattern and began to consider the implications of how I should allocate my time to research was clear it was that I must spend significant amounts of time understanding the people involved, and less on validating the market analysis that a competent analyst can provide with the same set of inputs.

Questions I ask when I am looking at a team's leadership is not the types of questions you find on investment checklists that are standard or diligence templates. They are questions that will require real conversations and time to respond properly. What happens when a leader has to respond when they're shown to be incorrect - should they seek to rectify the mistake or seek to redirect it? How do they decide when the information is genuinely incomplete and pressure to make a decision is great? What is the gap that exists between how they describe their leadership style and people who have worked with them describe their experience of working for them? What does the overall culture of the business actually look like on days when the founder does not reside in the building, and how closely does that version the culture mirror the one the founder describes when asked? The answers to these questions need conversations which go far beyond the presentation at the pitch meeting, and also beyond the formal presentation of the management. They require reference checks which are genuine exploratory and not superficial exercises in confirmation. They need the will to spend time in uncomfortable area that could uncover information that can complicate a deal you have already started with.

The operator dimension of my investment strategy is inseparable from the investor dimension, and it determines what I invest in and the way it is that I become involved. I am not a passive financial investor by nature or training. I'm a person who's developed businesses, who faced the transitions of scaling which are more challenging than the fundraising ones, who has made the hire and governance mistakes that you make when you're going through those transitions for the first time, and who has formed - through this direct experience - certain convictions about what organizations need at different stages of their evolution which a financial background can't provide. These beliefs make me a distinct type of investment partner than a pure financial investor as well as attract those who are seeking something that is different from the services a strictly financial investor can provide.

The founders I have the most fun working with are the ones are looking for a consultant who can assist them with the decisions and operational changes the financial shareholders aren't capable of engaging with at the right level of detail and precision. Someone who can be in the room when the governance framework needs to be changed because the organisation has outgrown the one it started with. Who can help navigate an executive decision in a time when a wrong decision could cost a company an entire year it couldn't afford to lose. Who is able to be transparent privately about the risks that no one other person in the room is happy to raise. That's the kind of participation that I think creates the most unique value for the businesses I back not the initial capital allocation decision, which anyone of the investors could make however, but the ongoing operational partnership that assists businesses bridge the gap between its current situation and where the numbers from the beginning suggested it could go. Have a look a James Deller for blog recommendations including how years of investing has shaped my thinking about growth.



The Reason Why The Majority Of Public-Private Partnerships Fail Before They Even Begin - And The Best Way To Fix Them
Public-private partnerships suffer from an image of a problem that's the majority of cases of the time, earned. The past of these agreements is full of projects that were advertised with genuine enthusiasm and significant politically-motivated capital. However, they used up significant public and private funds over prolonged periods, and then produced outcomes which bore a mere resemblance to what had been initially promised when the partnership in place. The academic literature and postmortem reviews that governments and institutions carry out following the fail-overs are massive, and they concentrate, for the majority, on particulars of contract and structure what went wrong: misaligned incentives, the inadequate risks shared between public and private parties as well as the governance systems which were conceptualized in theory however did not work in practice, the procurement frameworks that opted for the wrong things. What this research tends subdue, over and over again it is the cultural and operational aspect – the fact that public and private organizations are in fact different types of entities, formed in different ways by incentive systems, operating on radically different timelines, accountable to distinct stakeholders, and measuring the success of their operations in ways that are far from being the same in all respects but also differing in form. When you put these two types of organizations together in a formal partnership, without having the effort, in advance and clearly, to comprehend and manage those differences, it is not creating any kind of partnership. You're creating conditions for a slow-motion collision which could be apparent at the most untimely moment.
I have been involved in advising work to support institutional modernisation projects, a few that involved public-private partnerships at different levels of complexity. The most consistent observation I can draw from this encounter is that partnerships which performed well - that actually fulfilled their stated objectives and maintained a functional working relationship between the private and public partners throughout and beyond - were not distinguished from the ones that failed by the sophistication of their legal structures, their rigor of their risk management frameworks and the eminence of team of leaders that created them. In the end, they were defined by whether the participants on both sides of the table had worked to understand the way in which the other side functioned prior to when the formal partnership was agreed upon. What this translates to in practice is that you understand the decision-making processes that each business operates within accountable structures that constrain what each party can be able to agree on and at what speed each party can achieve its goals, the definitions for success that every party will be judged against, as well as the points of potential tension between those definitions. This understanding is not challenging to achieve. Every time, it's overlooked in favor of the most visible and easily documents-able task of negotiating contracts or establishing governance structures.

The usual public-private partnership procedure evolves from an initial idea to signing of the agreement with hardly any time and effort being paid to the concern of if the two organisations involved actually have the capacity of working together effectively over the course of. The legal team negotiates the contract. The finance department models the economics as well as the risk distribution. The team in charge of communications creates an announcement for the moment of signing. The implementation team begins to plan the work. At some point the discussion will turn to compatibility of the operations and culture - about whether the individuals who will have to work day-to-day across the dividing line between two organisations share enough common interests to make that work genuinely collaborative rather than antagonistic - tends not to be carried out in a formal manner. The assumption is, typically not explicitly stated, agreements in formal form create foundation for collaboration and that any operational or cultural divergences will be dealt with when they emerge. This assumption is usually not true, and the price will increase according to the ambition and complexity of the partnership.

The practical consequence of this analysis is that the greatest option a public private partnership could make – before the legal structures are agreed upon and before the governance framework is agreed on, before any announcement is made that is what I consider to be operational alignment. In this context, I am referring to specific, organized, and facilitation of work to identify the areas where the two groups' assumptions on operating differ and agree as to how those differences will be handled before they turn into operational issues when the plan is implemented. What matters most tend to be the same across various types of partnerships. Faster decision-making time and authority are generally among these. Institutions of public administration are designed to make decisions in a slow manner, with several layers of scrutiny and approval, based on motives that are legitimate and are often legally mandated. Private enterprises - particularly tech businesses built on the basis of rapid iteration and swift decision-making - frequently experience that speed as a primary obstruction to their progress. lacking a consensus on the reason for why it's the way it is and what would truly be needed to change it, the frustration that is triggered on the private side could sour the connection long before the partnership has a foothold.

Success indicators and what counts as progress are another persistent as well as a cause for divergence. Public institutions are typically evaluated on their process's compliance, equity in the outcomes among stakeholders, and the elimination of obvious failures that get media focus. Private partners are typically assessed by their efficiency, the amount of progress they have made towards targets, as well as financial return on investment. These measurement frameworks are made compatible with each other however, doing this requires careful planning, not just good intentions, and the partnerships which do not invest in that kind of design usually have to find themselves at critical moment, with two organizations who measure the same collaboration in genuinely differently and therefore coming to uncongruous conclusions regarding whether it is successful. What I've observed in the partnerships that fall short most clearly were one where the misalignment in measurement was considered to be something that would disappear over time. The ones that worked were the ones where the misalignment was surfaced explicitly, at the beginning, and where the creation of a shared accountability framework that accommodated the legitimate measurement needs of both parties needs became a piece of actual work, not an item on the list of things to arrive at.}