This is also posted on The Precession Effect and Sniper Value Investing.
The world of business is one that is cruel. The competition is very intense, you’re fighting hard against thousands of other businesses to gain your customers, they’re pulling all kinds of tricks to put you out of business, you name it, they’ve done or will do it. In short:
The idea of understanding the management of the company is an integral part of understanding how far the company can go in the future. Certain lessons from entrepreneurship can be applied to this as well. Essentially, the management steers the direction for the company, especially for the ones that are poised for growth and are founder-led. As an entrepreneur, we know that the team is as strong as its weakest link. This then brings us to today’s point regarding management.
Some key traits I look out for in the management are as follows (and I will phrase them as questions for you to think about):
Does the management look for nothing more than earning money, or do they have a vision that is much greater than themselves? Many a times, successful entrepreneurs have a very large and powerful vision. This stems from within and it powers the entrepreneur 24/7/365 to work to make that vision turn into reality. A strong tell-tale sign of that would be through video interviews (this will allow you to pick up verbal and non-verbal cues).
As Buckminster Fuller said “Integrity is the essence of everything successful.” Is the management a group that cowers behind the cover of their team when they have made mistakes, or are they willing to admit it and change? All of us have made mistakes when we run our own business, or do anything in life for the matter, it is important for us to admit and change. A management without integrity is a failed management.
How committed is the management to the team, to the business, to the employees and to the shareholders? I always like to say “see the company as a business, see the relationship as a partnership.” Is the management able to honor the partnership it has with the other stakeholders? How much skin-in-the-game does the management have? What is it doing to upgrade the skills and mindset of the employees? Are they willing to give up everything they have for the business? Remember, a team is only as strong as its weakest link.
Entrepreneurship offers so many lessons for investing, as is true for the reverse. Indeed, there is so much the management can do to set a company up to grow over the years, or set the company on the course to oblivion. Indeed, the VIC framework has much to cover in terms of both, and would take some time for all of us to digest.
The dream is free, but the hustle is sold separately.
Peace.
