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Risk, Luck & Vulnerability
The Situation
Most of us like to attribute the success of any risks we take to skill. Made a growth hire that worked out? Prioritized a particular product launch over another? Made a personal investment with savings that made good? It feels great to say that we weighed the risks and potential rewards, and the brilliance of our analysis paid off. (Alternatively, it feels better to blame bad luck when things don’t go our way.) But what if it’s all more luck — and takes more trust — than we’d like to think?
The Plays
Try acknowledging that outcomes might be more based on luck than you think (this also might be uncomfortable – we want our successes, and our failures, to be knowable). And, try sharing your vulnerabilities a little more than you’re comfortable with.
At its core, allowing for the possibility of luck in whether a risk pays off or not is a form of vulnerability. And, vulnerability with ourselves and the people around us builds trust, which gives us a foundation from which to build stronger relationships and accept more serendipity.
Admitting the possibility of luck doesn’t mean that we throw our decisions to the wind and let random chance decide any more than prioritizing vulnerability and trust in relationships means committing to full and total transparency in our communications and relationships.
But, purposefully becoming more open to the idea of luck and leading with trust both increase your surface area — the likelihood that you’ll put yourself in situations where your skills and talents allow you to take advantage of fortuitous circumstances, and that the trust and vulnerabilities you share with the people around you will give jet fuel to your relationships.
“Vulnerability… is taking some risks with sharing the thing that's truly happening, truly on your mind. Sometimes that's business related, sometimes it's personal. But I think it's about risk taking. And you do have to do work. You can't just insert, ‘Hey, tell me something scary that you faced yesterday’... into a conversation. You have to build the relationship.”
Pod & Post: The Psychology of Luck with Morgan Housel
“Coming to terms with the fact that you are a product of your past, the majority of which has been dumb luck (particularly where and when you were born and whom you were born to) is a pretty powerful idea… And it impacts how people think about money in particular.”
Listen & subscribe on: Apple Podcasts, Spotify, YouTube
From Another Newsletter: Unqualified Opinions
On risk and Legos:
“Smarts. Patience. Painstaking research. Some luck. Price discipline. A willingness to look stupid. That’s how you do it.”
On sharing your failures:
“No one bats one thousand and anyone who represents nothing but success is hiding something. Moreover, failing is important. Not only is it how we learn, but if you haven’t failed yet, failure is coming because you haven’t yet pushed the boundaries of what’s possible. And if you haven’t done that, it may mean that you don’t have enough experience.”
Post: The Messy Wall
“Walls do things. And we all have them. Make sure you know what they’re doing – what they’re keeping in and keeping out – and when you should build doors and windows or tear them down entirely.”
Throwback: There Is No Medium Risk
“If you can minimize the cost and tilt the range up and to the right, you win. But if you cap your upside in a world where there is no medium risk, you will inevitably lose.”
Go Deep
Scaling People: Tactics for Management and Company Building (Claire Hughes Johnson)
+ The book is full of tactics, ideas, and stories — to foster relationships built on trust, in yourself and in your team: “If you’re not self-aware, how can others trust your feedback about their own abilities and behaviors?… And if you don’t maintain a foundation of consistency and stability, how will those around you know what to expect?”
Ideaflow: The Only Business Metric that Matters (Jeremy Utley and Klebahn)
+ How anyone (not just creatives) can harness risk and vulnerability and luck to find ideas that solve problems. “Tackling an unfamiliar problem — or seeking out a better solution for a familiar one — requires not just ingenuity but courage and vulnerability. A willingness to put things our there and make the occasional mistake. The irony of the creative process is that we limit our creativity just when we need it the most.”
The Role of Luck in Life Success Is Far Greater Than We Realized (Scientific American)
+ Scientists did the simulations — luck is important in individual success. “Even a great talent becomes useless against the fury of misfortune.” But there are also factors that up your ability to attract and capitalize on luck.
Luck and the Entrepreneur: The Four Kinds of Luck (Marc Andreesssen)
+ There’s a road map for getting luck on your side, and it’s getting away from relying on chance and instead having a wide and eccentric mix of interest, hobbies, and approaches — and the ability to synthesize them flexibly and aggressively. “If luck does indeed play such a huge role, then that seriously dents the image of the successful entrepreneur as an omniscient business genius.”
And, preorder Morgan Housel’s new book, Same As Ever: A Guide to What Never Changes. “History is filled with surprises no one could have seen coming. But if we learn to see what doesn’t change, we can be more confident in our choices, no matter what the future brings.”
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The Expectations Game: Aligning Brand with Reality and Values
The Situation
“Brand” can feel like an afterthought. Identifying and communicating your brand can be particularly challenging for small businesses. Between fulfillment and finances, something so seemingly fluffy can fall by the wayside. You offer a great product and solve for a pain point. So slap a logo and a tagline on it and call it good, right? Not so fast.
The Plays
Brand is less about slogans and more about expectations. Ignore it, get it wrong, or misrepresent who you are and what you do and you’re setting the table for disconnect, resentment, and disengagement between your business and your customers (not to mention your suppliers, employees, and the community). Done right, though, brand allows you to build relationships and understanding with the people you want to attract.
Consider:
What problem are you solving for and who needs that solution?
What does your company do and value?
What do you want to tell the world about your company?
What do you want others to say about your company?
Where are there disconnects between what you say, what you do, and what you say you do? How do you close the gap?
Run the Plays
Interview: What Retailers Want from SMBs with Brittany Crosby
“What is always most important is how the product is different from what is currently out there. What problem are you solving and does the consumer know they need that solution?... You don’t need flashing lights and gimmicks to have a great product pitch. You need to be able to tell someone about the consumer insight you have found and how your product will solve it.”
Two from Permanent Podcast
Pod & Post: What’s Your Brand?
Brent Beshore talks about the importance of how people experience your brand, your service, and your product in the final installment of 5 Minute Management. (The content will keep rolling – we’re just not good at keeping it to 5 minutes.)
“Every time somebody comes in contact with your brand, they're testing what they think they know about your company (their predictions and expectations) against the experience they're having on the ground.”
Pod & Post: Building a World One Hug at a Time with John Fio
John Fio (Gravity Blanket, Moon Pals) joins Brent Beshore & David Cover to talk about what it was like to work with Justin Bieber, the importance of finding truth in what you create, why worldbuilding is more important storytelling, and why so many products won’t stand the test of time.
“[Storytelling] is one of those words that doesn't mean anything... So I would say I actually don't really think about product marketing as storytelling. I think about product marketing as a part of the design process of the product. So that sentence actually crafts the literal design and the experience of the product.”
Listen & subscribe on: Apple Podcasts, Spotify, Overcast
Throwback: How to Sell Anything
“A sale happens when someone with the ability to purchase values the thing purchased more than the money spent. Let that sink in. To get a sale, you need an able buyer with both the authority and resources required who is also convinced that the value of the thing being sold exceeds the value of the cash.”
Throwback: The Greatest Competitive Advantage
“The more people know you’re reliable, the more they trust and like you. You the person and you the business.”
Go Deep
What Does Your Corporate Brand Stand For? (HBR)
+ A matrix for understanding how internal and external components come together to form the brand core – and how to use the relationships to build a stronger brand. “Examining and refining your corporate brand is a true leadership task that requires far-reaching input and commitment, passion, and grit. The outcome—a sharpened brand, stronger relationships, and a unified organization—can provide a clear competitive edge.”
Brand Thinking and Other Noble Pursuits (Debbie Millman)
+ Meditations on brand from the people who live and breathe the psychology of selling, buying, motivation, and relevance, including Malcolm Gladwell, Seth Godin, and Dori Tunstall. “The word ‘brand’ is derived from the Old Norse word brandr, which means ‘to burn by fire.’ … We are [now] living in a world with over one hundred brands of bottled water.”
Unreasonable Hospitality (Will Guidara)
+ We have, technically, already recommended this book. But it’s a master class on building a world and a brand on exceeding expectations. “Intention means every decision, from the most obviously significant to the seemingly mundane, matters.”
The Dirty Work of Cleaning Online Reputations (The Walrus)
+ On reputation and the regaining thereof. “Many Reputation.ca clients are businesses worried about the effect of scathing customer reviews or social media rants from disgruntled ex-employees. (One 2020 survey found that negative feedback on public forums like Yelp or Facebook can drive away 92 percent of consumers.)... The internet has a long memory.”
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Growth Without Goals – But Not Without Strategy
The Situation
Who doesn’t want their business to grow? But unlocking profitable growth can feel like a black box. Where do you invest your energy and resources and those of your team? Where do you turn for outside help, and when should you prioritize new partnerships? How do you find what your Thing is, and when do you double down on it?
In other words, how do you get to the next level? And what do you do once you’re there?
The Plays
Nail down how you want to grow: Developing any growth strategy requires a careful assessment of current reality, available resources, and expected return. If you know where you are, what you’re able to do, and how much you’re willing to risk, you can identify and prioritize ways to grow, including one-time projects (often related to gaining resource capacity), the development of complementary products or services, solutions for improved quality, pricing and/or sourcing control, and major reinvestment or overhauls
Make sure you’re not compounding losses: You’re probably not levering up all the pieces of your business at once. While you’re concentrating on making gains (big or small) in one area, don’t neglect the other areas of your business – if they’re not at least holding steady, you’re losing ground in ways that will spread.
Find a core competency and double down: You can grow while executing well on what your business does best, what your customers need, what the market provides, and what you can control. Focus and relentless cultivation of a core competency gives you resilience while allowing you to build.
Whatever you do, do it sustainably: Hustling as a one-man-band doesn’t scale. Build a team you can trust, use delegation, training, and mentorship to release some layers of control, and consider bringing in trusted partners to help.
Run the Plays
Essay: How to Build without Buying
“It feels like we say this a lot: small businesses don’t stay small on purpose. And it’s true. Companies want to grow… Traditional private equity offers one answer on how to grow…” At Permanent Equity, we think there’s more than one answer, and in this new essay we walk through how we think about growth strategies.
Post: Multiply by 1.1
“When we say that businesses are ‘multiplicative systems’ – especially regarding that ‘tastes like chicken’ layer of business – we don’t just mean that small gains in individual parts of the business will compound (although that’s part of it). Each area (from finance to operations to strategic planning and beyond) has the potential to be a multiplier for the other parts of the business. Leveling up one area of the business, even by 1%, can spread.”
Permanent Podcast
Chris Powers (Fort Capital) joins Brent Beshore & David Cover to talk about almost losing everything, what changed his life and business for the better, building exceptional teams, the critical importance of real friendship and support, knowing where you’re going to provide the most value and find satisfaction, and prioritizing an operator’s mindset in the face of challenging conditions.
“For years the business couldn’t get a flywheel that could build momentum and start growing because I was constantly changing it… We were just trying to do deals, but we were great at nothing… We focus on one thing now.”
Listen & subscribe on: Apple Podcasts, Spotify, Overcast
Throwback: Growth Partnerships & the Preservation of Fun
“The most common way we invest is what we call a growth partnership. It’s an acknowledgement that the owner still has super strong conviction about the business, believes in its future, and wants to continue contributing (a.k.a. keep having fun)... While it means owning less, the ambition is that the pie also gets bigger. So it’s fun, compounding.”
Throwback: Ceilings, Scaling, and the Death of a Hustler
“But as your company grows (in units, people, scope, or any number of other ways), even if it’s growing linearly, the decisions that need to be made and the work that needs to be done grows exponentially. Continuing to rely on your individual ability will become a ceiling (for your business and for you personally) rather than a springboard.”
Go Deep
Scaling Up is a Problem of Both More and Less (HBR)
+ We tend to think of growth only in terms of accumulation, but the most effective growth also requires an eye toward subtracting. “A hallmark of skilled leaders and teams is that, as their organizations grow larger and older, as the footprint of a change program expands, they keep looking for signs of once useful but now unnecessary roles, rules, traditions, processes, products, strategies, and services. To borrow a phrase from author Marshall Goldsmith, they remain vigilant about ‘what got us here, but won’t get us there.’”
Multiplicative Systems: Understanding the Power of Multiplying by Zero (Farnam Street)
+ More math, but also basketball, meal prep, General Motors, and the difference between additive systems and multiplicative systems – and what all of them have to do with being human. “Most businesses, for example, operate in a multiplicative system. But they too often think they’re operating in additive ones.”
Business Scaling Wizard and Organizational Physics (The Fort)
+ An episode from Chris Powers’ podcast on growth, scaling, and systems. Plus another equation: “Success = Integration/Entropy.”
Scale: The Universal Laws of Growth, Innovation, Sustainability, and Pace of Life in Organisms, Cities, Economies, and Companies (Geoffrey West)
+ A deep dive on scaling, tipping points, and phase transitions – in short, how a system (organic, inorganic, or theoretical) responds when its size changes. “It’s not often appreciated that without a continuous supply of energy and resources, not only can there be no manufacturing of any of these things but, perhaps more important, there can be no ideas, no innovation, no growth, and no evolution. Energy is primary.”
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Build Connections/Connect with Builders
The Situation
Building strong relationships with our colleagues and our networks is crucial for cultivating good cultures, sourcing opportunities and advice, and getting the help we need to solve problems, achieve stability, or scale at velocity. We’ve all heard that most people want to be helpful – but how do you find the people who want to help, ask them for the right thing, and continue strengthening your relationship through reciprocity?
The Plays
Use a proactive approach: Reach out to people you admire, approach meetings with an objective, search out people with complementary skills and interests, and be willing and prepared to nurture relationships for the long term.
Make asks thoughtfully: Before you make an ask of someone in your network, clearly articulate what you’re asking for, who you’re asking, and why you’re asking this person for this specific thing.
Show meaningful appreciation: Say thank you (and be specific about the action, the impact, and the implication).
Pay it back and pay it forward: You will make asks from members of your network – for advice, for resources, for connections – but building long-term, compounding relationships in the workplace and in your broader circles also means bringing energy, honesty, intentional listening, and a willingness to help to the table, too.
Run the Plays
Post: How to Use Your Network
“Most people want to be helpful. So help them be helpful. Figure out whether you need to zoom in (clarity) or out (creativity). Source and phrase your requests accordingly. Then keep refocusing until you have what you need to keep going.”
Post: How to Say Thank You
“We’re actually terrible at showing appreciation at work. It’s called the gratitude gap. We assume people know that we’re thankful for their efforts. We forget to tell the people we spend our days with that we’re grateful for them – their contributions and their presence.”
Essay: Getting in the Room
“As you build relationships with others, both in investing and outside of it, treat connections as budding long-term relationships rather than one-off conversations. Building stronger bonds may mean fewer absolute outreaches, but a deeper understanding of individual perspectives and the ability to learn over time from a range of experiences. Also, a well-earned and dependable network has never hurt someone’s career.”
Post: Look for the Builders with Anu Hariharan
“It's important to know how to manage and lead teams and put systems and processes in place so you're not always in the weeds. But companies always go through tough times, and if you have a builder on your team as a leader, they will not be afraid to go into the weeds. That usually raises the bar of the entire team…”
Permanent Podcast
Companies don’t stay small on purpose. So how can you scale faster? Anu Hariharan of Y Combinator discusses the growing pains of going from start-up to success, how to grow as a builder and a manager, the importance of ruthless prioritization, and shares new technologies to help SMBs unlock their operations, and customer support.
(Be sure to subscribe to get the latest episodes in your feed!)
Throwback
The Greatest Competitive Advantage
“It’s our experience and our belief that there’s one competitive advantage that outshines the rest. It’s not a secret. It doesn’t require specific expertise or analyzing complicated metrics for incremental, interdependent gains. It’s one ‘do’ and one ‘don’t’: Do what you say you’re going to do when you say you’re going to do it. And don’t be an asshole along the way.”
Go Deep
Curiosity sparked? We've put together a list of resources on cultivating relationships based in trust.
Don't Just Network — Build Your 'Meaningful Network' to Maximize Your Impact (First Round)
+ Bringing relationships from the unfamiliar to the meaningful: “The way many people do it is gross. They get in touch out of nowhere in order to work an angle or ask for something under the guise of friendship…If you want to build an effective network, you must focus on what you can do for other people, not what they can offer you.”
Unselfing Social (The Marginalian)
+ A call to use our networks in service of one another: "There must be another way — a way to unself just enough to remember each other, to grow a little more awake to this world that shimmers with wonder, of which any one self is only a fleck.”
We’re Losing Touch with Our Networks (HBR)
+ The long-lasting effects of the pandemic on our networks – and what it means for job searches, career progression, creativity, belonging, and turnover: “Our professional and personal networks have shrunk by close to 16% — or by more than 200 people — during the pandemic.”
“You’ve Got to Figure Out What Motivates Them” (The Daily Coach)
+ Legendary University of North Carolina Soccer Coach Anson Dorrance on how to cultivate trust in a team (and how to tweak your strategy to reach who you’re talking to): “How do you treat them? What do you do for them? Do you have their back? Can they trust you with things they tell you? They have to know you have a respect and admiration for them that’s different than the person playing on their left or right. They have to know you see them, and you’ve got to figure out what motivates them.”
Theories on Trust Capital (Mark Brooks’ Thread)
+ Make sure you’re replenishing trust with your team. “Deposits of trust capital are made during positive interactions with others. Withdrawals, however, happen constantly. Trust capital outflows are the natural state. Trust entropy, if you will.”
“Every day you have less reason
not to give yourself away.”
Build Better Teams
The Situation
A business is first and foremost a group of people, and people are messy. How do you find great people? How do you convince them to join your team? How do you deal when people get messy? And how do you keep them engaged?
The Plays
Find:
Always be pipelining talent.
Consistently connect. Look for relevant people on LinkedIn. Keep your eyes and ears open at events.
Develop an outreach plan. Who should reach out?
Start building relationships. The goal is that, when someone you want starts thinking about their next opportunity, you’re top of mind for them.
Try an outbound search: Take high touch recruiting to an employee base that hasn't necessarily experienced outreach before. “Hey, have you thought about our company? We like your skill set and think that you could be a really good fit.”
Hire:
Design a hiring and interview process that works for your team.
Go through your own hiring process.
Map out who will be doing the interviewing at each stage, including how much time will be required and when.
Identify what really matters for a particular role – and how your hiring process will highlight those qualifications.
Develop a system around communicating feedback from one interviewer to the next.
Keep:
Start talent-oriented conversations with, “How do we keep the good people we already have?”
Create a culture where top performers want to stay:
Clear KPIs
Consistent touchpoints
Check-ins on motivation, goals, and highest-and-best use
Run the Plays
Highlight: Doing More with Less in “Multipliers”
“Small business owners and operators might be feeling the instinct to batten down the hatches to weather the recessionary storm that looms on the horizon. But looked at differently, this lean time might be the exact proving ground needed to identify and deploy the talent that already exists within your organization.”
Find, Hire, Keep – A 3-Part Series on Building a Team and Nurturing Talent
Part 1: Who Are You Competing With (And How Do You Compete?)
“The bottom line? Getting a nuanced understanding of who you’re competing with for talent – both in your sector and beyond – can inform how you structure more aligned compensation packages, support employee retention, and guide long-term talent planning and recruiting.”
Part 2: Designing a Hiring Process That Works For You
“One of the things I like to ask our leaders is, ‘Have you tried to apply for a job at your company? Do you know what that experience feels like? Do you know where it breaks down? Where is it challenging? What does the experience of the candidate feel like in terms of who gets back to them when? How long does it take someone to move through a hiring process? From the point that they engage to the point where you make an offer, how long is that taking?’”
Part 3: Designing a Hiring Process That Works For You
“At a fundamental level, you want to make sure that you’re thinking about who joins us? Why do they join us? Why do they stay and/or why do they leave? If you can get some clarity around those questions, then you've got data… And understanding those answers helps you devise your strategy.”
Permanent Podcast
How can you attract and retain top talent? What can small to medium size businesses learn from large companies? What challenges and opportunities lie ahead in this climate? Permanent Equity’s Kelie Morgan and guest Ashley Day give some tips and insights on up-leveling your talent pipeline on this episode of 5 Minute Management.
(Be sure to subscribe to get the latest episodes in your feed!)
Throwbacks
Finding Fit: Talent’s Guide to Big or Small
“Career decisions are difficult because they’re never really just about the job. They’re about how you see yourself, how you want to see yourself, the environment you want to spend at least a third of your life in, how you find meaning in work, and how you provide value and impact.” 12 questions to help you understand your best fit.
How to Fire Someone
“Of all the tough conversations you might have with a team member, this one might be the worst: ‘You’re fired.’ As a leader and a manager, the time is going to come when you’re going to have to let someone go. And it’s going to suck.” Advice from Mark Brooks on how to prepare – and have the conversation successfully and empathetically.
Go Deep
Curiosity sparked? We've put together a list of resources on finding and keeping top talent.
Always Be Recruiting (Masters of Scale)
+ Host Reid Hoffman and Kayak co-founder Paul English on the constant drumbeat of hiring and recruiting – and how to hire for complementary skillsets. “When you have a firm grasp on all your weaknesses, that actually frees you up to double down on your strengths. And then you can hire for the traits you lack.”
The Great Attrition is Making Hiring Harder. Are You Searching the Right Talent Pools? (McKinsey)
+ If you’re going out looking for talent, know who you’re targeting and what they’re looking for (or running from): “It cannot be overstated just how influential a bad boss can be in causing people to leave. And while in the past an attractive salary could keep people in a job despite a bad boss, that is much less true now than it was before the pandemic.” But motivators are different for different personas. Are you talking to a traditionalist? A DIY-er? A student? A caregiver? A relaxer?
Here’s How Google Knows in Less Than 5 Minutes if a New Employee Will Get Off to a Perfect Start (Inc.)
+ Hint: It’s more about the manager than the employee: “Managers who followed that advice got their new hires up to speed a month faster -- in Google terms, about 25 percent faster -- than those who did not.”
“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.”
Why Discipline Doesn’t Matter
Go Long
New Podcast: Shane Parrish – Why Discipline Doesn't Matter (Outside Insights)
We’re kicking off a new series on Permanent Podcast: Outside Insights. Each episode, we’ll bring on a friend of the firm for a conversation about small business ownership and operations – and whatever else is on their minds.
For our first episode, Brent and David chat with our long-time friend, Shane Parrish of Farnam Street and The Knowledge Project. He’s also an investor, a mental model aficionado, and an advocate for reading old books.
In this episode, he explains why your New Year's resolutions won't last, how to best improve tactical knowledge, and his most costly mistakes as an investor.
Check out Shane’s conversation:
New Post: Letting Inertia Work For You with Shane Parrish
“Getting to the point where your day is automatic takes intentional work, the ability to identify opportunities and priorities, a commitment to setting boundaries on your time, and some trial and error around matching your focus and attention to time and activity.”
Go Deep
Curiosity sparked? For more insights on how to change the way you look at the world, make better decisions, and discover new ways to apply old ideas to your life check out Farnam Street’s series of books: The Great Mental Models.
+ The Great Mental Models Volume 1: General Thinking Concepts (Rhiannon Beaubien and Shane Parrish): “In life and business, the person with the fewest blind spots wins. Removing blind spots means we see, interact with, and move closer to understanding reality. We think better.”
+ Clear Thinking: Turning Ordinary Moments into Extraordinary Results (Shane Parrish, coming October 2023, available for preorder): From the blurb, “You might believe you’re thinking clearly in the moments that matter most. But in all likelihood, when the pressure is on, you won’t be thinking at all. And your subsequent actions will inevitably move you further from the results you ultimately seek—love, belonging, success, wealth, victory.”
“Outcomes have more to do with good positions than good decisions. If you’re in a good position, the options available to you are all good. If you’re in a bad position, there’s only one path that’s gonna lead you out. And good luck finding it.”
Helpful, Not Impressive
The Situation
In an attempt to be impressive, things can get complicated. Credentials show up in email signatures, pitch decks get longer, authorship and ownership dominate discussion, and people vie for personal facetime with customers and suppliers. You can get caught in a game of optics without much getting done.
The Play
When you prioritize what’s genuinely helpful rather than what looks impressive, decisions are based on merit and what makes the business stronger. Growth for growth’s sake won’t make the cut. Neither will cost cutting for short-term profit. Shift the goals to sturdy growth, a committed team that feels seen and appreciated, and the ability to take measured risk.
Ask, “How can I be helpful to you now?”
Don’t try to win the conversation or make sure they adopt your ideas.
Create an environment that can tolerate frequent, small failures.
Remain humble about what you do and don’t know.
Optimize for keeping the range of possible futures open.
Use your resources on behalf of other people without expecting credit or gain.
Help those around you figure out where their potential lies rather than taking their idea, making it yours, and pushing it through the organization.
Go Long
New Podcast: Helpful, Not Impressive
How do you know if you’re doing it right? “The #1 KPI for helpful, not impressive is that people are asking you for help. You’re not intimidating to them and you’ve done something in the past that’s been helpful.”
This week on the pod, Mark Brooks and Tim Hanson talk with David Cover about what it means to be less impressive and more helpful.
(Be sure to subscribe to get the latest episodes in your feed!)
Go Short
New Commentary: Seeing Helpful, Not Impressive
“The easiest way to talk about being helpful, not impressive, is to reflect on how we act in our own lives – modifying our behavior to adopt a posture of sharing, compassion, communication, and rolling up your sleeves to do the work. But the other side of the coin is being able to recognize others who are quietly doing what needs to be done, beyond the flashier status-seeking of impressive.”
Throwback
What to Expect If Permanent Equity Buys Your Business
“The purpose of all of this communication is not to fault-find or micromanage, but to get to know the business from an owner’s and leadership team’s perspective inside and out, and most importantly to be helpful. We want to help where we have some insight or expertise, and otherwise leave our leadership teams to do their jobs and live a good life.”
Go Deep
Curiosity sparked? We've put together a list of resources on identifying and doing what's helpful, rather than getting caught up in optics.
Antifragile: Things that Gain from Disorder (Nassim Nicholas Taleb)
+If you’re building based on what’s impressive, you’re building a system that must be successful all the time – knock loose a brick and the whole thing will come tumbling down. “A loser is someone who, after making a mistake, doesn’t introspect, doesn’t exploit it, feels embarrassed and defensive rather than enriched with a new piece of information, and tries to explain why he made the mistake rather than moving on.”
The Rise of the Millionaire LinkedIn Influencer (Vice)
+On the side of impressive, and less than helpful. “After years of being known as a place to share resumes and search for jobs, LinkedIn has quietly transformed into a center for a different sort of influencer—the ROI-obsessed go-getter. It is, in many ways, ground zero for hustle culture and what some have deemed 'toxic positivity,' an aspirational place for people more concerned with self-care and cash flow than wisecracks and unattainable beauty.”
(P.S. If becoming a LinkedInfluencer is high on your to-do list, please enjoy this viral tweet generator, complete with adjustable cringe level.)
Saying “Yes” in Bob Iger’s “The Ride of a Lifetime” (Kelie Morgan)
+Sometimes being helpful is saying yes. “We have a similar ‘bet on brains’ philosophy at Permanent Equity. Maybe it stems from the fact that we’re a group of operators that stumbled sideways into private equity or that our CFO went to school to be a playwright not an accountant. In all reality, it’s because we know the power of saying yes to new opportunities and putting yourself in a position to grow and do more than you knew you could.” Also, check out our other “Highlights” – we hope they’re helpful.
“The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.”
Doing Stuff, With Others, To Grow
The Situation
The to-do list is growing by the day, with big projects and smaller tasks multiplying, from the mundane and repeatable to the big and audacious. Your team knows how to do some things, while other needs require new functions, more complicated applications, or may only happen once.
There are always more ideas than there is time to execute them – running a business is an exercise in prioritization. How do you figure out how to get the things that make your business go done? And how do you find the right partners, vendors, and providers to help you?
The Play
What’s the best way to do it?
Understand what has to get done – now and eventually – and what, realistically, doesn’t.
Figure out if it’s something you want to do in-house. Will having the capability to do the thing benefit your company?
Triangulate your need for speed, quality, and price to determine when to automate, hire, acquire, upsource, or outsource.
Specific to upsourcing and outsourcing, how do you find vendors that solve an issue, rather than add to the list of them?
Do your research and ask businesses that you admire who they’d recommend.
Run the Larry Bird play. Ask vendors you talk with who they’d recommend if you chose not to work with them.
Triangulate to figure out who really knows their stuff, and set reasonable relationship parameters.
Go Long
New Essay: How to Do Stuff
“Whether it’s manufacturing goods, creating a website, preparing taxes, writing copy for ad campaigns, or any of the other things that make your business go, there are also many different options for how you’re going to get it done. And, those options all come with tradeoffs and costs.”
New Essay: Mistaking Red Flags for Red Carpets: The Problem with Services for Smaller Businesses
“So, with rare exceptions, small businesses are choosing from a combination of new and subpar options, often without much guidance, and frequently based on dinner invitations and tickets to see their favorite team play. At first glance, it looks like a vendor is rolling out the red carpet. Look a little closer and that red carpet might actually be red flags. Most relationships are based on what’s easy and enjoyable, rather than what is effective… with underappreciated consequences for the company.”
Throwback: The Ceiling of Brute Force
“As a general rule, small businesses don’t stay small on purpose. Companies “top out” for good reason(s) and rarely because of the business model. Beyond a certain point, sheer effort no longer works to overcome critical challenges. This is the ceiling of brute force. Each company hits it at some point, but the size, specific issues, and level of complexity varies dramatically.”
Permanent Podcast
Mark Brooks walks through 8 ways to get stuff done.
(Be sure to subscribe to get the latest episodes in your feed!)
Go Deep
Curiosity sparked? We've put together a list of resources on setting priorities and getting things done.
Understanding Speed and Velocity: Saying “NO” to the Non-essential (Farnam Street)
+ On the beauty of “don’t do it” as an option for getting things done. “Velocity and speed are different things. Speed is the distance traveled over time. I can run around in circles with a lot of speed and cover several miles that way, but I’m not getting anywhere. Velocity measures displacement. It’s direction-aware.”
The Feedback Founders Need to Hear — How to Grow Yourself To Grow The Company (First Round Review)
+ You as a founder or leader can only stretch your individual ability so far. To really scale a business, you’ve got to create priorities, build your team, train, delegate, document, and create independent functions. But you can double down on feedback and self-reflection to grow your ability to do those things. “In the hazy days of changing business models, experimentation (and hopefully) hypergrowth, it's hard to know if something is working because of the leader’s behavior or in spite of it. At the same time, the faucet of upward feedback also slows to a trickle — as hierarchy takes hold, fewer and fewer feel comfortable challenging the founder’s big ideas, or pointing out their missteps. Furthermore, the parameters of your own role are constantly changing as the team grows and challenges stack up.
CEO/FounderPrioritization (Unusual Ventures)
+ Figuring out what needs your time and attention in the first place is half the battle, and this heatmap tool helps you triangulate what matters most and align your team to tackle the issues. “Each pillar includes a category, score (excellent, tolerable, or broken) with primary constraints and any must-do next step. The heatmap doesn’t have to be super detailed or perfect. The goal is to create a common resource for your team to work off of and discuss how to best prioritize as a team.”
Steal This CEO’s Obama-Inspired 4Ps Prioritization System to Keep Your Focus in a Chaotic World (Inc.)
+ The alternative to building slack into your schedule? The four priority levels of tasks and responsibilities: What comes to you directly, what you make decisions on (but is less urgent), what you stay informed about and advise on, and what you track progress on but stays off your day-to-day radar. Note, this only works if you allow yourself a fixed number of P1s and reshuffle when a task moves up or down the list. “Getting clear on what exactly you should be focusing on and getting real about how many priorities even the most accomplished human can handle should help chaos-proof just about anyone's life.”
“Things which matter most must never be at the mercy of things which matter least.”
Your Greatest Competitive Advantage
The Situation
Your product is good, as are your margins, at least for now. Your employees are competent. You’re attracting customers. But somewhere in the back of your head, it doesn’t feel sustainable. The edge you’ve clawed out over your competition based on pricing or geography or selection is slim, and feels like it’s disappearing. How do you inspire loyalty in customers, employees, supplies, and other stakeholders and turn your advantage into something that lasts
The Play
The greatest competitive advantage is to keep your word, always. That means:
Doing what you say you’ll do (when you say you’ll do it, for the price you said you would), while
Not being an asshole.
Building compounding trust is a relational way of thinking that requires repeatedly following through, even and especially when it’s hard. But it’s not enough to do it yourself, extreme reliability must be built into your company culture and processes. It’s not complicated (but that doesn’t mean it’s easy).
Go Long
New Essay: The Greatest Competitive Advantage
“What we’ve learned is that by weaving the idea of extreme reliability into our organizations and processes and recognizing that, at the end of the day, all we have is our word, we’re able to build an accruing advantage."
New Interview: On Doing What You Say You Will with Selective Search CEO Courtney Mohr
“For me, doing what you say you're going to do, it's more than just that. Are you trying to be honest and pure of intention? I think it really just has to do with whether you are equipped to deliver on your promises.”
Throwback: Our “No Asshole” Policy
“But, some people are messier than others. The messiest of them, we’ll call ‘assholes,’ because ‘jerk’ doesn’t quite get there. There are many forms of asshole, but all leave a similar, bitter taste… When we talk about assholes, we’re not talking about the person who accidentally cut you off in traffic, or who gave you a dirty look, or who hurt your feelings. Even the best of humanity has done far worse. We’re talking about someone who consistently creates, usually intentionally and maliciously, feelings of humiliation, oppression, and injustice.”
Permanent Podcast
This week on the pod, Brent Beshore reads our No Asshole Policy. A deep dive discussion episode around the policy is coming soon!
(Be sure to subscribe to get the latest episodes in your feed!)
Go Deep
Curiosity sparked? We've put together a list of resources on being extremely reliable and the accruing advantage of doing what you said you’d do.
Building and Growing a Competitive Advantage at Permanent Equity (Think Like An Owner)
+ We’ve talked about competitive advantage before. In this conversation with host Alex Bridgeman, Brent Beshore talks reliability, feedback loops, and more. “We just try to practice extreme reliability. And it’s an accruing advantage because the more people know that you’ll do what you say you’re going to do, you’re going to treat them fairly, react quickly, be honest about things, the more people want to work with you.”
How to Turn Trust into a Competitive Advantage (London School of Economics)
+ Are you a Trust Champion, a Trust Broker, a Trust Platform, or a Trust Architect? “Trust matters because it is a prerequisite for collaboration. To trust means to make oneself vulnerable to the actions of others because one believes in their good intentions and their ability to turn these intentions into outcomes.”
Use This Equation to Determine, Diagnose, and Repair Trust (First Round Review)
+ Reliability and trustworthiness are at the root of all relationships, but these qualities are often overlooked until things go off the rails. This equation helps you gauge where you are and course correct early if some element gets out of whack. “Essentially, the amount you trust someone is the sum of how credible you believe they are on a subject, how reliable they've proven themselves to be over time, and how authentic you think they are as a person, divided by how much you think they're acting in their own self interest.”
How to Build (and Rebuild) Trust (Frances Frei)
+ Trust is essential, but it can also be broken. How to get things back on track when the foundation of trust and reliability has eroded. “There's three things about trust. If you sense that I am being authentic, you are much more likely to trust me. If you sense that I have real rigor in my logic, you are far more likely to trust me. And if you believe that my empathy is directed towards you, you are far more likely to trust me. When all three of these things are working, we have great trust. But if any one of these three gets shaky, if any one of these three wobbles, trust is threatened.”
No Medium Risk
The Situation
You’re trying to find a “medium risk investment” – something with a good return opportunity and a lower chance of losing money. Does it exist?
The Play
Recognize that all investing is taking risks, none of which are medium. Your best move is to try to understand the type, magnitude, and probability of the risk you’re taking in order to create more upside variance in the things that matter.
What’s the downside of the decision?
What’s the upside of the decision?
What’s the price you pay?
Pick your non-negotiables, work to minimize the cost, and tilt the range to the right.
Go Long
New Essay: There Is No Medium Risk
“So if everything can go to zero, including not doing anything at all, we think you should only bet on things that have the optionality to go really, really well if they work.”
Throwback: Risk, Return and the High Wire Act
“Risk is tricky. It’s always in the background and underneath the surface, lurking and waiting. Ignore it and you’ll probably be fine - until you’re not. And when that happens, watch out, you’re likely in a world of trouble.”
Go Deep
Curiosity sparked? We've put together a list of resources on knowing the risks you’re taking and uncapping upside variance.
Risk Revisited, Again (Howard Marks)
+A meditation on what risk really means in light of an unknowable future – and how to cope with that uncertainty. Also, more on the many, many forms of risk. “Here’s the essential conundrum: investing requires us to decide how to position a portfolio for future developments, but the future isn’t knowable…How can investors deal with the limitations on their ability to know the future? The answer lies in the fact that not being able to know the future doesn’t mean we can’t deal with it.”
What Are the Odds of Making a Good Investment (Behavioural Investment)
+What happens when a pool player who lives to be good at pool meets a pool player who lives to set the odds in his favor? Why (and how) to think about the odds of positive outcomes. “Thinking about odds and probabilities is not intuitive and often uncomfortable, but it should be essential for all investors. It is far better to be an average investor with the odds on our side, than a good investor with the odds stacked against us.”
Tom Brady, Howard Marks, and Risk-Taking (The Daily Coach)
+On doing the unexpected and generating superior results: “What Brady and Marks have done to be successful, thus sustaining unparalleled excellence in their respective fields, is to be different, to be willing to go against the norms of their peers, and to take risks with a fresher, unique approach.”
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Handle With Care
The Situation
You’re walking into a room to have a conversation you don’t want to have. Whether it’s “The company’s under new management,” “You’re not great, yet,” “Your grand idea is a no-go,” “I’m concerned about what you’re doing, “You’re fired,” or “There’s a pandemic,” the conversation’s going to be hard. Trying to defuse workplace conflict, break bad news, or communicate big changes with empathy and compassion – while still getting the job done – is a tall order. In the worst cases, emotions run high, egos get involved, blame is thrown, people shut down… How do you prepare for and navigate hard talks with your team members?
The Play
For conversations meant to keep the relationship going:
Ask yourself why you’re having the conversation.
It’s one conversation. Keep your expectations grounded.
Prep for the conversation, have it early, and encourage more.
Don’t hint – be specific and direct.
Be mindful of the impact of emotions and relationships.
For firing someone (with care):
Remember your responsibility to the high performers in your organization.
Remember that you’re doing this to protect the culture.
Make sure this convo is coming at the end of a journey, not the start of one.
Go Long
New Essay: A Tactical Guide to Tough Conversations
“Having the tough conversation is, well, tough. Difficult conversations, workplace conflict, bad news, and big change announcements can be defining moments for company culture, business health, and relationships, both professional and personal. And the reality is that when the stakes are highest, we’re predisposed to be at our worst.”
New on Permanent Podcast
Rule #1: Permanent Approach (Ep 3): Brent and Mark sit down with David to discuss Rule #1 in the Permanent Equity Approach to stewarding companies that care what happens next. It's both essential and aspirational. Also Brent makes repeated ginger jokes (Mark and David both have red hair) and Mark explains why he's the Darth Vader of Permanent Equity.
Five Minute Management: How To Fire Someone (With Care): Firing someone should never be easy, but you can get better at it. Mark Brooks shares how to fire someone with care in a new segment from Permanent Equity called Five Minute Management.
(Be sure to subscribe to get the latest episodes in your feed!)
Throwback: Rule #1: Do No Harm
“By approaching our partnerships with humility and curiosity, by prioritizing outcomes in which everyone wins, by building trust in our relationships with our operations team, and by understanding the value we can provide, we’ve figured out what harm means to us. And we work like hell not to do it.”
Go Deep
Curiosity sparked? We've put together a list of resources on how to approach communicating with your team and tackling the tough subjects.
Radical Candor (Kim Scott)
+A framework for managing at the intersection of caring personally and challenging directly – while avoiding ruinous empathy, manipulative insecurity, and obnoxious aggression. “Relationships are core to your job. If you think that you can [fulfill your responsibilities as a manager] without strong relationships, you are kidding yourself. I’m not saying that unchecked power, control, or authority can’t work. They work especially well in a baboon troop or a totalitarian regime. But…that’s not what you’re shooting for.”
Crucial Conversations (Kerry Patterson, Joseph Grenny, et al.)
+See especially the STATE acronym for when the message is tough: Share your facts.
Tell your story. Ask for others’ paths. Talk tentatively. Encourage testing. “When conversations turn from routine to crucial, we’re often in trouble. That’s because emotions don’t exactly prepare us to converse effectively. Countless generations of genetic shaping drive humans to handle crucial conversations with flying fists and fleet feet, not intelligent persuasion and gentle attentiveness.”
The Classic Guide to Better Writing (Rudolf Flesch)
+Better communication comes in a lot of forms. “The trouble with writing starts right at the beginning…” Tell us about it.
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When Plans Go Wrong
The Situation
You’re smack dab in the middle of strategic planning for next year when you hit a wall of anxiety and doubt. Ghosts of strategic plans past are looming, and they’re reminding you of all the ways your previous plans have gone wrong – whether that means failing outright or succeeding in ways you didn’t anticipate. The communications plan that looked good on paper but didn’t end up converting customers. The hire that didn’t work out in the role they were recruited for but found a home in a different department. The succession plan that fell apart because of illness. The product rollout that never was in the aftermath of supply chain breakdowns. The capital reinvestments that relied on growth projections that were, in hindsight, delusional. In the face of this spotty track record, you start to see two roads ahead of you: Double down and try to break the plan down into ever more granular, measurable, controllable detail, or abandon it entirely. Surely there’s a third way?
The Play
In an uncertain world, you’ve got to plan for the only certain thing: that things won’t go according to plan. It sounds a little circular, but the point is to focus on the process of planning, rather than relying on the plan. The process lets you center humility, intellectual honesty, optimism, and a growth mindset.
Recognize and work to counteract the biases that skew planning and decision-making.
Train yourself to respond to the unanticipated.
Keep your Bayesian updating muscles strong.
Remain flexible and agile in the face of plans that go sideways.
→ Cultivate a posture that values learning, adaptation, and iteration to harness the power of choice and focus while remaining flexible.
Go Long
New Essay: Why Plans Don't Work Out
“For us, planning with uncertainty is figuring out how to build the only sure thing – that things won’t go according to plan – into the plan. We think the best way to do this is to approach each situation with high intellectual honesty, high humility, high optimism, and a growth mindset. It’s a posture, over a plan, that embraces learning, adaptation, and iteration while understanding that plans don’t have finish lines.”
New Interview: Jason Harp on Using Chaos for Good
“When you get punched in the face, instead of stumbling backwards, stumble forwards. Instead of forcing things to change, adapt to the fact that things are changing and make them change in your favor. Use the chaos for good rather than planning for good times or forcing the next thing to occur.”
Permanent Podcast
We’re Back!
The Messy Marketplace, our podcast based on the book of the same name, has been revived as Permanent Podcast. Two episodes are out now:
“What Happens Next” and “Growth Without Goals.”
Listen in on conversations happening around the Permanent Equity house about private equity, investing, buying, selling, and operating small businesses, and more.
(Be sure to subscribe to get the latest episodes in your feed!)
Throwback: A Small Business CEO's Guide to Uncertainty
A flashback to 2020 uncertainty, with advice on building a durable offense and proactive resourcefulness.
Go Deep
Curiosity sparked? We've put together a list of resources on building uncertainty into the plan.
OODA Loop (Wikipedia)
+The Observe–Orient–Decide–Act cycle developed by military strategist and USAF Colonel John Boyd. Originally developed for combat operations and military campaigns, the OODA Loop helps you take uncertain and rapidly changing circumstances to generate quick and agile decisions – before using feedback from those decisions and new information to re-run the loop. “Decision makers gather information (observe), form hypotheses about customer activity and the intentions of competitors (orient), make decisions, and act on them. The cycle is repeated continuously. The aggressive and conscious application of the process gives a business advantage over a competitor who is merely reacting to conditions as they occur or has poor awareness of the situation.”
Deep Survival: Who Lives, Who Dies, and Why (Laurence Gonzales)
+Where planning meets risk, life and death situations, and fear. “After reading hundreds of accident reports and writing scores of articles, I began to wonder if there wasn’t some mysterious force hidden within us that produces such mad behavior. Most people find it hard to believe that reason doesn’t control our actions. We believe in free will and rational behavior. The difficulty with those assumptions comes when we see rational people doing irrational things.”
Using Bayesian Updating to Improve Decisions under Uncertainty (Brian T. McCann)
+How Bayesian updating improves decision-making through a few simple steps: 1. Think probabilistically; 2. Assign exact estimates to your degrees of belief; 3. Combine prior probabilities and evidence strength estimates using Bayes’s rule. You’re probably already updating, so why not do it intentionally – and better? “But, perhaps the most valuable aspect of thinking in Bayesian terms is its wide applicability—it applies to just about any sort of managerial issue that involves the formation and updating of beliefs. The more accurate these beliefs are, the better your managerial decisions will be.”
Good Strategy/Bad Strategy (Richard Rumelt)
+Taking the “strategy” out of “strategic planning” and bringing it into the light. The logic of a good strategy is less about vision and more about identifying critical issues and opportunities to guide coherent action. “A good strategy includes a set of coherent actions. They are not 'implementation' details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.”
Wrestling’s Greatest Shoots: Bruiser Brody vs. Lex Luger (Grantland)
+Please don’t pretend you don’t want to know more about this shoot match. “The two wrestlers go at each other and they tie up — it’s the way every wrestling match starts, or at least how they used to begin. Brody starts clubbing Luger with forearms. Luger is stunned, but he looks more confused than hurt. Maybe it’s his overmuscled posture, maybe it’s his inability to look hurt, maybe he’s just confused.”
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Building a Better Small Business Budget
The Situation
2023 is right around the corner and new challenges and uncertainties continue to emerge. Planning is beginning to feel like a deranged game of whack-a-mole. To build a budget and plan for the new year (or at least next week), you’ve got to make predictions, but any stance you take will result in a drastically different strategy. The stakes feel high because they are high.
The Play
Make your budgeting as dynamic as possible. That is, focus on creating a budget that’s easily updated, adaptable to changing circumstances, and able to accommodate a wide range of inputs, while still generating actionable, useful information.
Breaking down uncertainty:
What are the most meaningful contributors to your business?
How much have they historically changed?
How do they influence each other?
Compare budgeted key assumptions against past performance and volatility.
Tinker.
Prepare to pivot.
Go Long
New Essay: Build a Better Small Business Budget for 2023
“2023 strikes us as a year when every business, large or small, struggling or booming, should have a thoughtful outline to keep on top of performance and understand where there might be risks to or opportunities for the bottom line.”
Video Explainer: How to Build a Better Small Biz Budget
The only thing you know for sure about your company's budget is that it's going to be wrong. So what will you do? Permanent Equity CFO Tim Hanson walks us through some of his favorite budgeting tools and why it's important to know if your budget is Optimistic, Reasonable, or Pessimistic.
Throwback: Build a Better Small Business Budget
In which we discuss how to make a budget that’s, above all, realistic, simple, dynamic, logical, and useful. AND, how a good budget is really just a good communication tool.
Hypothetical Small Services Business LLC Budget
Download a copy of the simple budget for Hypothetical Small Services Business LLC to play around with the numbers.
Go Deep
Curiosity sparked? We've put together a list of resources on small business budgeting, managing volatility, and adapting to changing circumstances.
Finance for Nonfinancial Managers (Gene Siciliano)
+A guide for the rest of us on reading and understanding financial reports and using that information to make better, more informed decisions. “Regardless of your path, your career success depends on doing [financial] things reasonably well, and you cannot do that without a respectable knowledge of finance and accounting. Notice I didn’t say a thorough knowledge and I didn’t say you need to understand how accountants process detailed information. I didn’t even say you had to get it right every time, because accountants don’t, either. But you do need to be comfortable talking the language of finance at the nontechnical level so that you can communicate effectively in either direction.”
Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts (Annie Duke)
+How to optimize decision-making for long-term success in a world full of uncertainty, emotion, biases, and dumb luck. “Over time, those world-class poker players taught me to understand what a bet really is: a decision about an uncertain future. The implications of treating decisions as bets made it possible for me to find learning opportunities in uncertain environments. Treating decisions as bets, I discovered, helped me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible.”
The Base Rate Book: Integrating the Past to Better Anticipate the Future (Michael Mauboussin)
+A tangible guide to forecasting that combines evidence based on experience (the inside view) with outcomes of relevant reference classes and base rates (the outside view) to build better predictions. “If the outside view is so useful, why do so few forecasters use it? There are a couple of reasons. Integrating the outside view means less reliance on the inside view. We are reluctant to place less weight on the inside view because it reflects the information we have gathered from our experience.”
On the Psychology of Prediction (Daniel Kahneman and Amos Tversky)
+More on why we predict the way we do (poorly). Specifically, we use representativeness to make intuitive predictions, meaning we select outcomes based on the degree to which they represent essential features of the evidence. “In making predictions and judgments under uncertainty, people do not appear to follow the calculus of chance or the statistical theory of prediction. Instead, they rely on a limited number of heuristics which sometimes yield reasonable judgments and sometimes lead to severe and systematic errors.” Or, “Evidently, statistical training alone does not change fundamental intuitions about uncertainty.”
Predicting the Future Is Possible. “Superforecasters” Know How. (The Ezra Klein Show)
+If this is you, hit us up. “Virtually every consequential thing we do in the world is an implicit forecast because we’re making assumptions about what will follow later. Sometimes those assumptions are so obvious we don’t even think of them as a forecast – we think of them as virtually factual – but [policies are] competing forecasts about what will happen with respect to inflation, inequality, government deficits, a long list of outcome variables that people are arguing about.”
Reducing Owner Dependence
The Situation
You're a founder getting ready to sell your business or know an owner who's preparing to step back. You're used to making a lot of decisions. Maybe some decision-making has been delegated, but it's inconsistent. Past hiring for leadership positions hasn't always worked out. You're on the cap table and are personally guaranteeing a line or leading key banking relationships. The justified pride you feel at being known as the owner of your business is slowly turning into uneasiness that customers are buying from you and not the brand. It's time to start thinking about institutionalizing decision-making, relationships, and financial structures to ensure that your business survives beyond an individual owner, but the path towards operational independence isn't clear.
Successful founders are usually successful because they care, and care obsessively. In practice, though, when you're getting ready to sell your business or take on outside investment, you have to be able to demonstrate that the business can function and flourish without you.
The Play
The Successful Step Back
Ownership Dependence: If you get hit by a bus, would the business be in crisis?
Identify financial dependencies the business has on you personally.
Ensure your organization will be able to maintain the same types of financial relationships in your absence.
Institutionalize customer and team relationships.
Regularly discuss with your team how and how much you want to be involved.
Operational Dependence: What will operations look like if you're not involved?
Know yourself, and create priorities.
Hire competent outsiders -- build out a management team.
Mentor, train, and delegate.
Document institutional knowledge and key processes.
Scale functions to be truly independent.
Go Long
New Essay: The Kingdom or the Crown
“The reality is that if your business is dependent on you, it’s less attractive to investors, harder to transition to new ownership, and unnecessarily chaotic to wrangle if something happens to you.”
Video Series: Owner Dependence
In her role on the investing team, Managing Director Emily Holdman has had thousands of conversations with founders, owners, and operators as they navigate what's next for their companies. Emily shares her insights on overcoming the challenges an owner-reliant company faces.
Throwback: Why You Can’t Sell Your Business
We first talked about the dangers of having a business that can’t exist without you here. Spoiler: There are a lot of reasons it might be hard to sell your business.
Go Deep
Curiosity sparked? We've put together a list of resources on owner dependence, control trade-offs, and personal planning.
Business Succession Planning: Cultivating Enduring Value (Deloitte)
+ A compilation of six volumes on the nuts, bolts, and importance of succession planning and ownership transition. This guide covers everything from the need for planning ("For a business, working without a succession plan can invite disruption, uncertainty, and conflict, and endangers future competitiveness. For companies that are family-owned or controlled, the issue of succession also introduces deeply emotional personal issues and may widen the circle of stakeholders to include non-employee family members.") to its function in cementing a legacy ("What is a legacy? Is it the continuing operation of your business? It can be. Your personal wealth? Your family’s wealth? The brand image and reputation you’ve built? The lifestyles and careers of your children or other successors? Yes to all.").
From Trust to Impact: Why Family Businesses Need to Act Now to Ensure Their Legacy Tomorrow (PWC)
+ See especially the final section on Family Dynamics, taken from PWC's 10th Global Family Business Survey: "Family harmony should never be taken for granted. It needs work and planning, and it should be approached with the same focus and professionalism that’s applied to business strategy and operational decisions. Seventy-nine percent of family businesses have some form of governance policy or procedure in place—down from 84% when we asked the same question in 2018."
Action items?
Professionalize family governance (while understanding that families are dynamic)
Write down values
Allow external help
Family Business Succession Planning Opportunities (The CPA Journal)
+ A no-nonsense guide to succession planning options, including gifts, family limited partnerships, equity recapitalizations, employee stock ownership plans, and more. "Although family-owned businesses are responsible for 60% of jobs in America...only 15% of them have anything resembling a succession plan in place. Furthermore, businesses have a difficult time surviving through multiple generations; just making it to the second generation is a milestone event; only 30% make it through the second generation, and just 12% make it through the third."
The Throne or the Kingdom: The Founder's Resource-Dependence Challenge (Noam Wasserman)
+ We quoted this piece in our essay, but it bears repeating: "Startups in which the founder is still in control of the board of directors and/or the CEO position are significantly less valuable than those in which the founder has given up a degree of control. On average, each additional degree of founder control reduces the value of the startup by 23.0%-58.1%."
A Short History of Succession-Planning Disasters (Quartz)
+ A little extra motivation to reduce owner dependence early. "Under Belichick, and with the talents of quarterback Tom Brady, New England has won six Super Bowls. The Jets have yet to win another since their lone championship in 1969." (See also, King Lear.)
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