The Score Takes Care of Itself: 2021 in Review
The older I get the more I believe success starts with good posture.
My middle-aged body is a constant reminder of this principle physically. I ache when I slouch. When my heart posture and intellectual posture are directionally humble and honest, decisions become easy and the path of progress becomes obvious. When I stray, which always starts with self-obsession, self-seeking, and self-aggrandizing, life gets quickly complicated and confusing. Our eyes were meant to look up and focus on bigger things.
Since businesses are nothing more than collections of messy people trying to achieve common aims, it stands to reason that an organization’s posture will be a mix of individual frames of mind, heart, and even sometimes body.
This is culture, the shared grooves of habit, conscience, and character. It’s why Peter Drucker pronounced, “Culture eats strategy for breakfast.” And, every other meal.
Said differently, culture is everything and everything about culture starts with posture.
At Permanent Equity, we think a lot about who we want to be. It’s always aspirational; in this life no one arrives. But if we have free will and ability, the aim matters. How we spend our days is how we spend our lives. We’re always becoming something, for better or worse. We want to be an organization of kindness, self-forgetfulness, and service. We strive to serve our sellers, leaders, employees, vendors, customers, and communities well through win-win-win deal structures, long-term thinking, and humble help. Too often, we fall short.
This year, our shared posture at Permanent Equity moved in a positive direction. Success!
If that seems like an odd measure of investment firm performance, ask why. Action results from intention. Outcome results from action. Intention is rooted in posture and culture. If we move our culture positively, then intention, action, and outcome should follow. If your aim is for things downstream of culture: good outcomes, good decision-making, or even good intentions, then you best also aim for good luck, because you’re going to need it. Aim for good culture and it’s likely you get positive results at every level thrown in. The score takes care of itself.
For those keeping score, we acquired two new businesses, which were our largest and third-largest checks to date. We’re thrilled to be partnered with both, and so far things are going better than we deserve. Besides spending time together, early days have included investments in new positions and process-improving tools.
Despite weather delays, rampant inflation, a dearth of skilled labor, and some obvious missteps, our family of companies performed well overall, allowing us to make reinvestments for growth, while providing distributions to investors. True to form, our operators navigated this year’s obstacles with grit and optimism, and we’re grateful for their partnership. No plan panned out perfectly, but in almost all cases, negative surprises resulted in new opportunities and invaluable insights.
There’s a strange paradox to life that often the biggest long-term gains come from short-term losses. We all have a tendency to get lulled to sleep. Wakeup calls, while never enjoyable, can be cause for gratitude.
In summary, I’d welcome the 2021 scorecard every year.
One area of opportunity for significant improvement is patience, and its flamboyant cousin expectations. Frankly, we don’t wait well. This year had its share of frustrations, mostly from what we didn’t or couldn’t do. If you had asked me mid-year, I would have told you that we would have made at least two additional acquisitions, and potentially more. I would have expected us to be busy in Q4 closing new opportunities. We geared up for it, only to have a series of unanticipated events transpire.
The most common frustration is price. Price is typically relative to quality and inversely related to risk. I’m not going to shock anyone when I say that prices are going up, while risk, in our view, is not going down. What we do is not complicated -- we sell money, time, and relationship. The nuance, inefficiency, and opportunity to succeed or fail comes from identifying quality and risk across a multitude of facets. To the novice eye, it’s easy to behold the obvious, buy the story, and look past the facts. Numerous times this year, we disagreed with the risk and quality assessments of other firms, especially those led by newcomers to the space, those with little skin in the game, and those looking to make a quick buck. And this is not to throw stones. We were once brash novices. Our education was expensive and perhaps theirs will be, too.
Enter patience and perspective. Making good decisions is hard enough, but nearly impossible with the pressures that accompany traditional capital constraints. Most LPs are buying a “vintage of fund” or “exposure to an asset class.” The job of the GP is to deploy capital promptly and in-thesis. Management fees aren’t paid for waiting. Action is rewarded with a fresh fundraise, more AUM, and more fees.
Thankfully, our LPs have afforded us the ability to play a different game. With a 10-year investment period and a 27-year initial term, we can wait. We did zero deals in 2020 because nothing attractive presented itself. And our investors paid zero fees. This year, we consummated two transactions in an environment that should have yielded greater harvest. I’d be lying if I said that watching others pay up and seemingly “win” isn’t frustrating and temporarily intoxicating. Hence our need to reframe the game. The more we can focus on improving our individual postures and shared culture, the more likely we win long-term.
A great place to start is gratitude. I am grateful for being in partnership with talented and thoughtful team members and investors. I am grateful for their trust in me, patience with me, and their willingness to speak truth in love to me. I am grateful for their hard work and deep care. I am grateful for my family and friends, who share with me kind correction and frequent laughter. While not without obvious problems, I am grateful for living in the United States of America and the state of Missouri. Most of all, I’m grateful for Jesus, whom I follow.
With a heart of gratitude, I keep this year’s letter short. I don’t know what the future holds, but I’m looking forward to the adventure. Cheers to helping each other keep our eyes looking out, looking up, and looking at the right prize.
PS: If you happen to know a business owner looking to sell and cares who buys, we’d love to meet them.
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