Posts Tagged ‘resilience’

Profit In A False Sense of Security

Wednesday, April 26th, 2017

 

I am fascinated by the probable cause when owners, Boards and top management in mid-market businesses (US$10M to US$Bn), “don’t take the money” and shortly thereafter, end up with a failing or failed business. Specifically, when a serious offer is made for growth capital or even an outright sale of the business, and in the next 6-12 months after the refusal, the fortunes of the business partially or totally collapse. Nowhere is this more visible than today’s high growth private tech businesses (the infamous “unicorns”) and in an often overlooked area, service businesses with a powerful owner-operator or managing partner in a partnership structure.

The decision-making factors are consistent throughout. The business has deliberated carefully or taken an opportunistic approach to accepting external capital or key talent. What has varied is the owners’, the Board’s  and/or top management’s judgement, resilience or trust over time. Faced with changing market conditions (regulation, technological and other convergent forces), a key client “win” or “loss”, rising/declining investor or trade interest and so on, there is a discernible change. They consciously ignore other’s prudent advice that they have implicitly trusted in the past (mitigating risk). They increasingly believe that they are “impregnable” in their market position (market hype or vanity investments). They allow common sense to be distorted by inflated but unsubstantiated talk (valuations, growth prospects, barriers to entry, unique technology etc.).

Having worked with six privately-held mid-market businesses over the past 3 years around the globe, who turned down offers and subsequently, experienced very public falls from grace (legal, e-commerce, hotels, gaming, financial services), the underlying “cause” in my experience is ultimately, poor leadership. It is people, not the business that have screwed up.

For my current and prospective clients reading this, who fear my strategic advice comes with a poison in the tail, rest assured I have had a great many more winners than losers!

Yet in the immediate aftermath of a partial or total business failure, there is a rush to assume that the firm’s opportunistic or conservative approach to accepting new capital or talent is the “cause”. That is inaccurate, and here is why. There are a great many successful businesses, who have been consistent in adopting diametrically opposed approaches to accepting external capital or ownership (in insurance, AJ Gallagher vs Hub International, in hotels, Peninsula vs. Fairmont Raffles, or in the premium art business, Christie’s vs Sotheby’s). In just the same way, sticking to niche products, services or geographies or constantly, adopting a diversification approach, is rarely the “cause” of failure.

Take great care in jumping to a conclusion. Profit is to be found, as many smart long-short investors have found, in looking out for a business owner’s, the Board’s and/or top management’s increasing false sense of security, the resulting changes in their behaviour and the positive/negative impact on their business and the competition.

© James Berkeley 2017. All Rights Reserved.

 

Chasing An Entrepreneur’s Dream

Tuesday, March 21st, 2017

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I ‘ve had a 40 year passion for the sport of horse racing, in particular national hunt or steeplechase racing. The global heartbeat of the sport lies in Ireland, UK and France. For four days in March, the very best horses and horsemen gather in a natural amphitheatre in the Cotswolds, 100 miles west of London, to compete for 28 races and prize money totalling £5 million. Cheltenham is Glastonbury, Burning Man and the Mid-Autumn Festival wrapped up in a visceral connection with a sport that breaks hearts and delights in equal measure. 260,000 racegoers passed through the gates last week, a great many Irish, to bet, roar approval and dance the night away in the local inns and hostelries until dawn. Male and female, men of the clergy, the soil and the City, grandparents telling tales of old to the young, and the carefree exhibiting their party tricks to any willing audience. Year after year, it is a rite of passage to have “done Cheltenham” from Roscommon to Newbury.

Yet behind this beguiling sport and its’ pinnacle, lies a modern story applicable to any growth business or industry, a tale of a sport where the elite level has created a gargantuan gulf between itself and the rest of the sport (Formula One, America’s Cup). Resilience, separates those who thrive from those who merely survive or throw it in.

Billionaire and multi-millionaire owners, who are willing to satiate their passion “blowing” £10 million a year after-tax in the hope of their horses achieving glory, albeit with zero residual value. Gucci-loafer clad bloodstock agents, trainers, jockeys and vets only too happy to help.

Dramatic scientific and technological improvements (breeding, procurement, nutrition, strength and conditioning) over the past 25 years have enabled the very best trainers to create very powerful systems, backed up by dominant levels of financial capital. Competition at the elite level, will always be sustained because the nature of animals racing against each other and jumping 20 fences is not an exact science. Yet many of those in the “squeezed” middle and the lower rungs of the sport complain that their businesses are near, or at breaking point. The patronage of five powerful men has created a concentration of power and influence in the hands of a very small pool of horsemen. They are paying for glory, the big race winners. Success has bred success and breaking into the chosen clique has become extremely difficult.

Yet there is no shortage of young aspiring horsemen willing to go “all in” chasing their dreams of breeding, selling, training or riding a big race winner. Their passion is such that just like a jobbing Hollywood “runner”, they are willing to embrace the 85 hour working week on a very modest wage, and menial tasks, to work their way up the ladder. Most won’t make it, some will leave the sport with their ego dented and in good health, others won’t be so lucky, retired jockeys with broken bodies, and “burnt out” trainers with deep levels of personal debt. The sport has an incredible level of camaraderie and philanthropy, largely hidden offers of future employment, re-training or housing. It is a sport where attendance at church in the major training centres on a Sunday remains exceedingly high. Thankful for the good life, if not the good luck.

It is a sport like many industries that takes no prisoners, where no one is guaranteed success, billionaire or horse groom. It teaches us that resilience, resilient people and resilient support systems (family, friends and mentors) are key when chasing our passion and ideal career.

The black days, for they will come as certain as the sun will rise over Cheltenham’s Cleave Hill in March 2018. The hopes of many resting precariously on the back of a four-legged animal jig jogging to the start, thousands disappearing into the satchels of on-course bookies pitched in a fierce four-day battle with punters and a great many in the game, acutely aware that fate may deal them a glorious hand or consign them to the “has-been” tray forever. As entrepreneurs, we take many of the same risks and experience similar highs and lows, yet by and large, we are only humbled by defeat if we choose that pathway. Yet, we too must be realistic about the nature of our business, our ideal future and the growth journey we choose. It is great to dream but without resilience, talent and discipline, we won’t get there.  Are you willing to bet sufficiently big on yourself?

© James Berkeley 2017. All Rights Reserved.