Dear Portfolio Company CEO,
Hi, my name’s Chris and I fund the folks who fund your
company. I’m the money behind the
money. I can’t remember if we’ve met,
after all, I’ve got several hundred cats just like you in my portfolio. There’s a chance that we talked at your
backer’s last annual meeting; maybe I visited your factory; or perhaps I called
you for a reference check. You may not
remember me, but I was the dude wearing the red t-shirt under my dress
shirt. I took good notes during your
talk and told daffy stories during the breaks.
Yeah, that’s me.
Anyhow, I wanted to drop you a note since I’m a bit worried
about you. You see, the last time the
economy slumped, we LPs heard endless tales of management teams that just
couldn’t stay ahead of the game. “We
discovered we had a bull market CEO on our hands,” was a common refrain. “Those guys were a great growth team, but
when the going got tough . . .”
It seemed like private equity funds went through CEOs like the
Yankees used to go through managers (although I’ll note that Stump Merrill couldn’t
have been fired fast enough, but that’s another discussion.)
So there I was, talking to my Operating Partner buddy,
Bruce, about this phenomenon and he made a clarifying point: “Management is always an exercise in battling
entropy,” he opined. “Order tends to
disorder and the application of energy is required to restore order. It’s an immutable law of the universe and
it’s a law of management.” Consequently,
he continued, “in tough times, the disorder comes at you a whole lot faster and
requires a lot more energy to manage.”
I don’t think that it’s too much of a stretch to say that
energy is a function of time and people who are cavalier about time become
magnets for disorder. It’s like Lucy and
Ethel in the chocolate factory: the conveyor belt speeds up and there’s just no
place for all those blasted bon-bons to go.
Indeed, the ingredients of any business are: ideas, people,
capital, and time. And of those
elements, time is the most immutable, the most obstinate, the most
tyrannical. They’re just not making any
more of it!
You have but one weapon against this cruel oppressor: focus.
In good times, managers don’t
have to focus as acutely because the creation of good stuff outstrips the slouching
to disorder. The great all-weather
managers, on the other hand, have to focus because they realize that time is
really expensive and when the creation of good stuff slows, entropy lies in
wait. Choose what to do and what not to
do. Just choose quickly and be explicit
about your choices.
We’re all in this together.
Your success becomes my success (less, ahem, the GP carry) and I’m
rooting for you. You guys are the
beating heart of the entrepreneurial economy.
You guys rock nonstop. Stay focused
and be careful out there; you’re facing the greatest enemy of all: time.