Underwriting Your Greatest Investment
A friend recently sent me a podcast that featured accomplished businessman and philanthropist Mitch Rales. I wasn't familiar with Rales previously, but quickly learned that his track record of successful business building is as prolific is as his net worth. What stood out from the conversation was the elegant simplicity of his business leadership philosophy. Yes, he does significant due diligence before any investment or acquisition, and yes he remains maniacal about benchmarking as a way to steal valuable lessons from the competition. But the way he framed his overall approach really resonated with me: the most important thing you can do before investing in a business is to underwrite the Founder/CEO.
Rales is absolutely steadfast in his belief that the leader of the organization needs to have a particular DNA he considers critical to building successful businesses (with him, at least). Specifically, he looks for learning agility, curiosity, and both the mindset and chronological runway to allow for longevity. The criteria, which Rales has proven works for him time and time again, is interesting in both its specificity and its broad application (the first two in particular can be applied to almost any successful venture). But what struck me more was the fundamental principal behind the concept. It's something I've done myself plenty of times, but I've never consciously thought of it in those terms. The fact that someone as successful as Rales does tells me I'm on the right track.
Ten times out of ten, bet on the person.
This isn't a blank check to go hire good people to run your business, perform open heart surgery, or build a skyscraper. Don't blindly bet on a good dude with a bag full of bad ideas. They need to have the baseline skill set to be in the conversation. But once they pass the entrance exam, bear down on what makes them tick.
The best business plan can fail. The best hitter can strike out. How does that person process that setback, and ultimately respond to it? What drives them? Is it a quick pay day or building something that lasts? How has their background shaped their foreground? These aren't things that you can decipher from a balance sheet or a CV. You have to really get to know that individual as a human being.
I've shared how this trust factor influenced my personal thinking when negotiating multi-million dollar contracts. It's the same principle that Rales leans on to pick a CEO or invest in a company. Clearly, you need to be talented. But after that, who are you as a person? Because that's really what I'm buying.
Granted, this isn't as easy as conducting financial underwriting in a spreadsheet. It skews more art than science, but the approach should be similar. Determine your "buy box", in whatever it is you're decisioning. Know what you're looking for. Specifically, figure out the criteria that are critical to making your venture a successful one. Then simply start digging in for nuggets that prove or disprove your thesis. Yes, you have to trust your instincts, but the simple act of knowing what you're looking for like Rales does gets you closer to a quantifiable, underwriting mentality.