Operating Systems

Most folks know the term operating system to apply to computers, phones, and hardware. But any complex system, from individual humans to companies, have routine procedures and norms that when taken together form its operating system.  At Permanent Equity, our top order of business is to continuously improve our portfolio companies' operating systems. But as is normally the case with change, questions arose over what this actually looks like in practice from a seller's perspective. 

This week we published a new essay on what to expect from us as a seller post-closing. Well, the answer is, in a nutshell, not much. We don't like to get too far into the weeds where industry-know-how trumps our lack thereof, because we are already buying businesses that operate well in their space (read: they generate excess free cash flow). 

These businesses have routines, procedures, and practices that have been built over years of experience. But there are generally changes that can be made to boost efficiency of decision-making, operations, financing, hiring, firing, and everything in between. We try our hardest to optimize our companies such that everyone from employees to executives are doing more of what they are best at - running their operations. 

We improve our portfolio companies' operating systems with both high-tech and low-tech solutions. We seek to improve their technology stack by implementing the right solutions to capture the low-hanging fruit. Whether it is a fully or semi-automated marketing funnel, a new CRM, an improved accounting solution, or a proprietary talent pool, we support our portfolio companies by helping free up time and capital. In addition to technology solutions, we also support our companies in non-tech related areas including legal counsel, negotiating financing, and strategic planning. The beauty of our portfolio approach is that it is relatively easy to roll out an operating system solution that solves a general problem across the portfolio fairly seamlessly.

At the end of the day, it all boils down to our mission as long-term owner-operators: to let the operators operate, to help them as needed, and to grow the family over time. 

Claire's offsite toolkit (coda.io h/t Justin Hales)
+ Offsites are useful for three purposes: helping teams bond, evaluating progress towards goals, and long-term strategic planning. This 'toolkit' will help guide you through your company's next offsite, soup to nuts. 

What to expect if Permanent Equity buys your business (Permanent Equity)
+ "The day after we partnered with a business, the CEO (who remained in place and from whom we bought our stake) called us up to share a problem with a longtime customer. After describing the issue (which had to do with spending a few extra dollars to deliver on that customer’s expectations), he asked what he should do. Our response was simple: Do what you would have done two days ago."

Todd Hitt’s shameless con: how Washington society got scammed by one of its own (Washingtonian)
+ Trust, but verify: "Even as Hitt worked the room during Washington’s most glittery weekend, he had yet to pony up for the party—and he never would. Not two months later, he would become the target of a federal criminal investigation. By fall, the FBI would unmask Kiddar Capital as a multimillion-dollar Ponzi scheme and rebrand Hitt as a shameless con man."

The economic effects of private equity buyouts (Harvard Business School)
+ "We examine thousands of U.S. private equity (PE) buyouts from 1980 to 2013, a period that saw huge swings in credit market tightness and GDP growth. Our results show striking, systematic differences in the real-side effects of PE buyouts, depending on buyout type and external conditions. Employment at target firms shrinks 13% over two years in buyouts of publicly listed firms but expands 13% in buyouts of privately held firms, both relative to contemporaneous outcomes at control firms. Labor productivity rises 8% at targets over two years post buyout (again, relative to controls), with large gains for both public-to-private and private-to-private buyouts. Target productivity gains are larger yet for deals executed amidst tight credit conditions." 

Ad-targeting tech goes old school — with snail mail (The Hustle)
+ In the age of email and text overload, could it be that paper is back in style?

The year startups took over the Super Bowl (The Hustle)
+ "On January 30, 2000, a single sentence set against a yellow background appeared on the TV screens of more than 130m Super Bowl viewers. “This is the worst commercial on the Super Bowl,” the advertisement said.  It was homemade by the founders of a relatively unknown startup called LifeMinders.com in just 6 days. It lasted 30 seconds — and cost $2.1m (watch it here). If it sounds unusual, it wasn’t: Not that year, anyway. Eleven startups spent millions for 30-second spots in Super Bowl XXXIV. The very next year, 8 of these 11 companies had either gone bankrupt or been sold in fire sales."

After 15 years as a product leader, CEO and now VC, here’s the advice I always share with future founders (First Round Review)
+ "Gmail’s user interface. Facebook’s Newsfeed. Twitter’s timeline. Dropbox’s bottom-up revenue engine. In his 15-year-career, Todd Jackson has helped build some of the biggest products in tech that hundreds of millions of people use every day."

The coronavirus has forced world's largest work-from-home experiment (Bloomberg)
+ Sniffles are permitable in the office, but when a country-wide pandemic strikes, companies take measures to necessary extremes. 

Authorities find longest southwest border smuggling tunnel In San Diego (KPBS)
+ "U.S. Customs and Border Protection said the tunnel featured an extensive rail/cart system, forced air ventilation, high voltage electrical cables and panels, an elevator at the tunnel entrance, and a complex drainage system."

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