What Next?
We had a gentleman drop by our office recently to talk shop. He had sold a business then used that capital to buy a few small businesses and presently found himself in a position that he thought was maybe akin to where Permanent Equity was six-to-eight years ago. If that was true, and he wasn’t far off, his question was what should he do next if he wanted to start on the path of getting to where Permanent Equity is today?
We talked some about opportunity sets, deal flow, and raising outside capital, but then our CEO Brent gave what I thought was some pretty clarifying advice. Before you do it, he said, decide that it is what you really want to do.
The gentleman said that that was why he was here, but also what did Brent mean by that?
What you have now, Brent said, is a pretty good life. And where you want to go is a pretty good life. But getting from A to B is hard. You’re going to have to reinvest almost all of your earnings, build a team, make mistakes, and so on. And that won’t always feel great. So if you’re going to do it, make sure you really want to do it, so that even when it doesn’t feel great, you’ll stick with it.
This, of course, describes the catch–22 of the status quo, particularly if the status quo is a comfortable one. Preserving it is boring, but disrupting it is risky. So what do?
One thing that I believe it’s helpful for an organization to define and have is a north star. This is a singular objective against which all other objectives can be measured (as in “Would achieving that objective put us in a better or worse position to achieve our north star?”). That said, defining a singular north star objective is inherently tricky, so a start is even just having articulated aspirations.
We have a few of those at Permanent Equity and one is “to build a world-class investment firm in Columbia, Missouri.” Now, was this clearly articulated six-to-eight years ago when Brent and (the then smaller) team decided to reinvest earnings to grow our capabilities? I don’t know that it was or wasn’t, but those efforts then did put us on the path toward building that and it’s a path that, while difficult, has been more rewarding than less.
What’s interesting, however, is that neither the inputs nor outputs along that path have been linear or consistent. For example, initial efforts were around building capabilities. This required reinvestment, which reduced earnings and therefore weakened the balance sheet relative to the size of the organization. Then we made some effort to put the organization in a position to be able to sustain and opportunistically deploy those capabilities regardless of the operating environment it may find itself in (shoutout paranoid optimism). This meant retaining earnings to strengthen our balance sheet, which if you’re excited about growth and reinvestment, isn’t always the most exciting thing to do.
Yet both objectives, while opposite, are consistent with building a world-class investment firm in Columbia, Missouri. So what next?
Like the gentleman who dropped by our office, we probably find ourselves in a position where we might level up again. But before we do that, we need to take our own advice, define what that looks like, and decide that it’s what we really want to do.
– Tim
