Time and Money
I was speaking with an investor the other day who wanted to learn a little more about Permanent Equity, and he asked me about roles and responsibilities. He wanted to know what all of the people on the team do and how we work together, with a particular interest in how our founder and CEO Brent and I interact.
I knew right then that this person was not (yet!) an Unqualified Opinions reader because he did not know about the four important roles i.e., the person who generates opportunities to take risk, the person who decides what risk to take, the person who executes, and the person who measures and reports on the results. At Permanent Equity, Brent is first and foremost the person who generates opportunities for the firm and where I come in is helping decide which risks to pursue.
Of course, the thing about taking risk is that doing so can also create problems and because of opportunity cost something that has crystallized for me since I wrote about the four important roles two years ago is that not only is it my job to think about which risks to take, but also about which problems to solve and more importantly how.
See, as chief investment officer I am accountable for allocating the firm’s capital. While that capital stack includes money, it also includes time since we are paying people to do good work. In other words, we have time and money to solve problems and pursue opportunities so which should we do and when?
A reality that has troubled us over the past 24 months is the self-diagnosis (and we’ve told this to our investors) that we’ve probably spent more time mitigating downside than pursuing upside in our work with our portfolio companies to the detriment of our returns. That’s because, even though we all know that compounding upside is what generates long-term returns, when you’re in the thick of it with a challenged investment, that situation will tend to get more of your attention than thinking about what an investment that is going well might do next.
It’s in recognition of this that one framework I’ve begun toying around with is that when it comes to operations maybe we should aim almost exclusively to solve problems with money (i.e., outsource, settle, etc.) and pursue opportunities with time. Because if we approach it that way our people will definitionally be spending more time on upside than downside.
Now I recognize that trying to solve every problem with money is a slippery slope, and I certainly don’t want to advertise to the world that we will settle any lawsuits brought against us. That said, I think there’s a there here and I want to stress-test it.
See you Friday.
– Tim
