People and Mindset
Our CEO Brent, Managing Director Emily, and I hosted a Q&A session with investors, operators, and other interested parties in Omaha recently while in town for the Berkshire Hathaway annual meeting (congratulations, by the way, to Mr. Buffett on a remarkable run, and I agree with The WSJ’s Jason Zweig that it is unlikely to be repeated). We got a lot of great questions in the course of that meeting (and thanks again if you joined us), but one particularly thoughtful one requested that we talk a little bit about where our returns come from and specifically how much we get from underwriting an investment and how much we get from improving operations post-close.
This gave me a chance to talk about Permanent Equity’s secret formula. Namely, that our success as an organization depends on raising capital, investing it well at scale, and making gradual improvements in those investments over a long period of time.
In the course of talking about that and how much comes from where and why, I realized that while the above formula is clarifying, the “growth” variable could probably benefit from being clarified further. After all, there are lots of ways to “grow” a business or the value of an investment.
Further, having a clear plan to grow a business is crucial to long-term investing success. That’s because while paying the right price is a good way to get an investment off to a great start, it’s a one-time event whereas gradual improvement is what delivers the compounding returns we’re all after.
So as I thought about ways we have been helpful to the growth of our operating businesses, I realized that there are two broad categories where we’ve been consistently most helpful and also where we get the most bang for our buck: people and mindset.
With regards to people, there are two parts. First, it means identifying roles inside of the organization that need to be filled. Second, filling those roles with top talent. After all, if you have great people working on important strategic items, more times than not results will follow. This is why we in-sourced our recruiting function and then stood 10th Street Talent up (shoutout Kelie and crew!) as an independent entity in order to increase its capabilities. People are that important to growth and there’s not a business in our portfolio where we haven’t helped with hiring or have plans to.
Mindset is somewhat of a more nebulous concept, but it means in a world where opportunities exceed resources (which is where all small businesses find themselves), helping our companies think and talk through what to do when and in what order and what their expectations should be. Usually this takes the form of Permanent Equity pushing the businesses to take more risk than they might otherwise take on their own, take it differently or with different positioning, and understand what’s out there and what excellence looks like since we look at a lot of different things. In fact, I got a kind text message from one of our operators the other day after we’d been dealing with a few issues who said, “If you and I have the time to align on the full fact set, we usually come to the same conclusion…[even] our friction is productive as it forces me to think about things like risk mitigation.” And that’s mindset: collecting and working through all of the facts, in context, to then decide to do something that will have a high probability of success.
This isn’t to say we also haven’t been helpful in other ways that haven’t also contributed to growth, but rather that people and mindset are the two areas where we’ve been most helpful in the most cases and that have contributed the most, at least when I run the numbers, to our post-close returns. And, for what it’s worth, to great relationships with our operators.
– Tim
