Does This Matter?
Back in January David (our creative director) shared an early cut of the podcast Brent, Mark, and I recorded to go along with Brent’s annual letter and asked me what I thought. I listened to it and responded “Let me think about it.”
The thing was, there was a lot of banter and not much of it was about business or investing. It also felt casual. Did we need to be more serious?
David took the feedback, made some edits, and we ultimately published a version of it. So it was with some trepidation that I shortly thereafter received an email from one of our larger investors that read “I just listened to the podcast. We need to talk.”
When we got on the phone he said that he was so thankful that we recorded that podcast. It helped clear up for him stress he felt around what he believed to be the biggest risk to his Permanent Equity investment. “My concern with your 27-year structure was that the team wouldn’t stick together for the duration of the fund life,” he said, “but I think you guys actually like each other.”
We put a lot of time, effort, thought, and rigor into the materials we provide to investors. It kind of sent my head spinning that this one’s most significant concern about us was mitigated by listening to us shoot the shit for an hour. But it also made perfect sense.
This got me thinking about what we think matters or doesn’t matter and what actually matters. If we think something matters and it actually does, great. And if we think something doesn’t and it doesn’t, perfect. But if we think something does and it doesn’t or it doesn’t and it does, that’s bad.
I think it matters a lot that you like the people you work with. You spend a lot of time with them and everything is easier when you have a genuine relationship. But I’ll be honest that until recently I hadn’t spent much energy thinking about how we might best demonstrate to others that the people on the Permanent Equity team like each other…or that we even needed to.
But that’s why it’s important to try to know what matters and what doesn’t.
We see this all of the time in deals. What matters to a seller often is a higher valuation and what doesn’t is standing behind her projections because she’s confident she will hit them. What matters to us is getting the performance we’re paying for. Ergo we can value the deal to the projections but structure it so we buy less than 100% of the company but get 100% of the return if they’re not achieved.
You also see it in compensation. An employee can be compensated in lots of currencies: guaranteed dollars, performance bonuses, equity, vacation days, etc. Some of these the employee will value more than others and some the employer will value more than others. The key here is to not transact in a denomination with a wide bid/ask spread, because then neither will be satisfied.
Of course, it’s self-evident that if one thinks x and another thinks y, the two won’t be aligned. But it’s remarkable how often it’s so hard to know what another is thinking.
– By Tim Hanson