[Off topic] Road Rants

[Beware; there's absolutely no investment content below.  If you're looking for something thought-provoking, look elsewhere . . .]

So here we are in the thick of the fall annual meeting season, which means I’ve got Seat 22E Palsy – again.  I’ve often said that I accomplish 105% of my annual productivity while on the road, but it’s really hard to bang out an investment memo or board book report (or a blog post) from a middle seat on a tightly packed Southwest Seven-Three-Gee.  The amount of sustained contortion necessary to do anything more than one-finger-peck a laptop would stress out even a seasoned Chinese acrobat; I sometimes wonder if I could expense the massage I invariably need after a long flight in a middle seat . . . it’s either that or some kind of workman’s comp claim (just kidding . . . anyhow, the workman’s comp cats probably would have a hoot about a milquetoast investor like me bellyaching about sore shoulders; the country has bigger problems). 

But seriously, I find that the most effective way to tap-tap away is to scrunch up one’s shoulders, rotate the torso about 25 degrees and go cross-handed, with one hand taking the top half of the keyboard and the other the lower.  Every now and again, you gotta switch it up and go southpaw, or else you can cramp up.  I used to hate connecting flights, but now I relish the computer free climb-outs and descents offered by each stopover that give my aching back a break.  It’s a hard knock life (said sarcastically . . .  there are a million worse things I could be doing with my days and nights).

But if you’ll indulge me for a moment, dear reader, I’ve got a gripe that I need to get off my chest:

I've noticed that security lines now ask travelers to self-select into cohorts by traveling skill; there’s even a ski slope-like rating system.  I fancy myself an expert traveler, so I look for the black diamond.  I bet there’s even a double-black hidden away in a known-only-to-locals corner at Hartsfield-Atlanta or Orchard Field (that’s the old-school name for O’Hare, hence airport code ORD; I got your useless knowledge right here, pal!) 

Anyhow, I really think there should be some sort of sanction if you screw up in an expert traveler line.  Walking through the metal detector with your six-pound, all-steel “Don’t Mess with Texas” belt buckle?  Three months probation.  Left your boarding pass in your duffel bag that just went through the metal detector?  Two hours community service.  Forgot to remove your laptop?  $1000 fine and five days in jail.  Seriously.  You’re in the expert traveler line and you don’t remove a laptop?!? 

And I've noticed that Midway Airport is the worst . . . it’s as if people's brains are addled from having endured another Sisyphean season by their beloved Cubbies.  But in the Southwest terminal, there's a Kafka-esque twist: the expert traveler line snakes around out of sight, so you have to commit to what might e a 30 minute wait while the rookies are breezing through.  Sometimes you realize just as you've turned the corner that the posse from the senior center is taking its annual trip to Reno or the girls of I Tappa Kegga are spring breaking (Like Omigod! Like what do you mean I can’t like bring my like 48 ounce bottle of like aloe acai essence conditioner on the plane with me?!?  Like Oh! My! Gawd!)  Sorry, girls, you gotta remember the 3-1-1 rules.  After all, violators will be prosecuted.  Now, if you'll excuse me, I've got to sign off . . . my shoulders are starting to cramp up again.

Picture of the Day: The Ruins of a Low Dishonest Decade

I think you'd be hard pressed to find a city whose economy offers a better tour through the American economy — with all its ups and downs — than Seattle.  From the once-vibrant sawmills along the muddy banks of the Wishkah to the cavernous airplane factory in Everett to the bucolic Microsoft campus over in Redmond, it's all there.  Driving around for an afternoon, you can take a journey through time from the resource-focused past to the post-industrial future. 

And on a sunny day, there may be no finer city in all the world.  I love walking around Seattle when the skies are blue; glimpses between buildings offer fleeting peeks at diamond-sparkling Puget Sound and the verdant isles beyond.  The occasional seaplane buzzes by, punctuating a steady line of Boeings flying back to the place they were born, an airborne metaphor for the salmon running in the crisp freshwaters nearby.

And there's this great sculpture on Second Avenue; I've always thought of it as a metallic version of the stone ruins on some sun-drenched Aegean isle.  Maybe the sculptors were making a point: sic transit gloria mundi; everything is fleeting, no matter how permanent the marble or metal may seem.  It's irony in steel.

But on Thursday I looked up and realized (not being a local) that these urban ruins stand (er, lie) on the grounds of the Washington Mutual Tower.  A sculpture of ruins before the old HQ of a ruined company.

And then it hit me: forget all this symbolism of paying back TARP funds.  Maybe WaMu's corporate heir, JPMorganChaseandFriends, should contact the sculptors and ask them permission to "fix up" the sculpture.  Maybe with enough (ahem) inducement, the artists could decamp (under cover of night) the askew original for a meandering sculpture garden somewhere.  In its place, they could deposit a new set of pieces that would snap together cleanly when righted.   Imagine the photo op: hardhat-clad, bullhorn-clutching Jamie Dimon directing cranes as they ressurect the columns.  The pillars of capitalism standing once more! 

Of course, if we've learned anything from the ruins of those ancient lands it's that disasters, natural and man-made, inevitably take their toll on temples and memorials.  Sometimes, it's what people do and how they act that resonates better than the monuments they build.


In the Time of Chicken and Broo-Lay

Gah!  It's been a few weeks since I last posted, but I've got an excuse: it's annual meeting season.  Now in good times, the meeting circuit can be like a Saturday night in LA (or so I'm told).  Folks caravan from house to house, party to party, over the hills and though the canyons.  Gentle sea breezes caress the travelers as the complicit stars wink from their high perch.  The venues are different, but the guests are the same.  We hear stories of heroic exploits in far-off lands . . .

But in bad years, the season can be more like the Odyssey.  Adrift on a storm-tossed sea, we find each port more perilous than the last, the gods conspire against us, our hosts are full of treachery and guile, we grow haggard and dispirited . . .

Needless to say, this year feels more like the latter.  I thought about trying to write an Odyssey parody, but before I could say, "sing in me, Muse," it hit me that maybe I could offer (with help from friends) something more interesting: an answer to that perennial GP question, "how could we make our annual meeting better next year?"  So I informally canvassed some LPs and collected thoughts on best and worst practices.  I'll share those below, but I'd love more good ideas.  The GP you help may be your own . . .


The Good

Better annual meetings are marked by high levels of information sharing and candor.  After all, we're not just investors, we're Partners, right?  I've talked in the past about Partnership with a capital P and at the heart of such a relationship is an open and honest dialogue between peers.  An annual meeting can't in itself be the be-all/end-all, but it can help set a tone for the relationship.  To that end, here are a handful of crowd-sourced ideas that might be worth considering (some sublime, some miscellaneous):  

  • Breakout Sessions: The most tedious meetings sometimes feel like interminable lectures.  The presenters drone on, often reading slides verbatim (engendering the too-common, "I flew here for that?" reaction among investors).  As an alternative, some LPs suggested devoting a chunk (if not all) of the annual meeting to topic-focused breakout sessions with a GP or two leading an interactive talk among a manageable subset of people . . . something akin to college discussion sections (but without the ill-tempered, Gauloise-puffing grad student). 
  • Portfolio Company Speed Dating: One VC fund has a biennial "science fair" at which LPs rotate among breakout
    rooms, checking out different technologies and talking to entrepreneurs.  Other VCs schedule days for portfolio companies to have rapid-fire meetings with BigCo biz dev or M&A teams.  Why not use those as a model for a couple of hours of few-on-1 meetings between interested LPs and portfolio company managers?  Think of it as the "speed dating" alternative to the meat market that is the pre-dinner cocktail party.
  • Simple Scoring:  Sometimes it's hard to get a really good sense for company progress, especially during the staccato sprint through 30 company slides in 15 minutes.  Sure, the EBBS (Earnings Before, ahem, Bad Stuff) margin at one firm is up 23 basis points from last year, but how is that company doing?  Sometimes the torrent of numbers crowds out the analysis and handwriting atrophy that arises from all the typing we do prevents us from scribbling notes as fast as we once did.  A couple of folks suggested using a consistent green/yellow/red rating system for portfolio company assessment.  The slides could even break out the ratings along critical dimensions: strategic positioning, team development, execution, progress to exit, etc. 
  • Year Over Year Accountability: Too many company discussions take place in a vacuum.  Sure, we like to hear about metrics, but some LPs asked for those metrics to be contextualized relative to last year's expectations.  Maybe gross margins at firm X grew 36 basis points, but what if you said last year that you expected them to grow 50?  Or to grow 25?  There's some interesting discussion fodder in that delta.  Sure, we all dust off last year's notes (I gotta admit that I'm just getting around to typing up notes from last October,) but it would be helpful to take more of a longitudinal view, rather than a snapshot. 
  • Management Team Videos: Some folks are big fans of meetings where CEOs are present, but in lieu of a live presentation they show edited 3-5 minute videos of portfolio company teams describing the voodoo they do.  That way, attention can be focused on the most critical topics while avoiding the too-frequent CEO presentation that rambles on for twice its allotted time.  Don't get me wrong, I love portfolio company management teams, they just happen to be more fun at the cocktail hour than up on the podium. 

  • Traveling Light: I've had annual meeting road trips for which I've packed an empty duffel bag just for all the binders I'm sure to collect.  Offering to FedEx meeting materials back is a huge help (and here's a cost saving tip: we'll probably still be on the road when those binders arrive, so you can save a few bucks and send the packages second day).  Some people even send CD-ROMs or USB keys.  To that end, my buddy Du (the SuperDuperLP) even suggested a green twist: BYO (bring your own) USB to give to a staffer for instant download.  Saving postage and saving the Earth.  Brilliant! 
  • Eat, Drink, Be ChattyOn the networking front, several LPs asked for longer cocktail hours and one even described the cocktail hour/heavy hors d'oeuvres combo as being preferable to an outright dinner.  For those who do opt for a dinner, some LPs suggested having the speaker talk during the meal or dessert, rather than having us wait until after everyone finished.  Emily Post may protest, but the last thing people want after a day of travel is any more chair time. 
  • A Wacky Idea:  Speaking of dinners, I've got a love-hate relationship with formal meals.  Usually the tables are too large and the conversation atomizes into pods of two or three.  Most of the time, that's ok, but sometimes, the chemistry is funky (and I always feel bad for the folks stuck talking to a blowhard like me!)  What if tables were reshuffled between courses, giving everyone a fresh set of people with whom to chat?  It might be a nightmare of choreography, but could be really cool if well-executed, doubling (or more) the number of interactions one could have. 

The Not-So Good

Some of the most frequently reported-on worst practices were little more than poor executions of good intentions.  Said another way, every vice is just a virtue taken to an extreme:

  • A Bad Start: Please don't spend 15 minutes and four slides at the outset of the meeting describing the fund's strategy. 
    We get it, we've already bought the ticket and we're on the ride; yet
    several LPs reported amazement at how many GPs go through the same exact
    "what we do" slides year after year. 

  • The Never-Ending Story:  I love portfolio company managers, I really do.  But every time one
    bounds enthusiastically up to the podium, LPs communally draw a deep
    breath.  Will we get a crisp overview of the company and its progress? 
    Or are we going to meander endlessly through a jargon-laden discussions of the
    product/channel matrix and SWOT analyses of key competitors?.  One
    comrade described it thus: "I want to know enough about each portfolio
    to be able to ask the right questions, but I don't need a daily flash-report familiarity.  That's what I pay GPs for."  
  • Corollary #1 (Pecked to Death By Ducks):  Some funds instead do rapid-fire short presentations; someone mentioned once sitting through three hours of such 10 minute-long CEO talks.  After the first few, they inevitably start to blur together.  That LP's view on this topic: "thank God for Blackberries."  
  • Overscripting:  Few things are more painful than the verbatim read through of the slide deck . . . just send us the presentation and save yourself the room rental fee.  Double demerits for using a teleprompter.
  • Biology:  The length of time a meeting can run without a bathroom break should be regulated by either OSHA or the Geneva Convention.  Sure, one can scoot out for a restroom break, but who knows what you'll miss? 
  • A Riot of Numbers:  I love fund CFOs and I appreciate that they should get some airtime, but there are some who do little more than recap the data from the most recent quarterly report.  Assume we read the QR; please peer instead into your crystal ball to tell us something about expectations for the fund going forward.  The best such discussions explore what you need to believe to get the fund to a given return threshold. 

  • Cruelty to Fake Animals: Lastly, we've all got enough fleece to have stripped bare a large herd of polypropylene sheep; no mas, please!  (Titleist Pro V-1s, on the other hand, make for swell souvenirs.)

A Meta-Thought

I spend a lot of time talking about the difference between transparency and intimacy: transparency is simply a line-of-sight, but intimacy is about having an intuitive sense for what goes on in the Monday meeting, understanding how the cast of characters lines up on key issues, having a feel for which companies are doing well or poorly, knowing which partner on a roll and which one lives under his own personal raincloud.  Transparency is about data, intimacy is about information. Transparency is about investments, but intimacy is about Partnership.

And a good annual meeting can improve intimacy.  In addition to the obvious information gathering, the tone of the meeting and what is not said can be as important as what is said.  When I was surveying folks, a handful of LPs
wished out loud that some of their GPs had showed some humility and had taken more responsibility for their portfolio struggles, rather than blaming "the environment."  Even in the best of
times, the markets can be a humbling place, sometimes favoring the lucky, but mediocre investor at the expense of the unlucky but good one.  A bit of candor
and self-reflection goes a long way towards creating durable goodwill
while obfuscation and buck-passing makes people crabby.  Don't be
afraid of bad news; it's an opportunity give your partners a peek behind the curtain.  After all, we're in this

America the Blackboard

After thirty-six years of living on the East Coast, I packed up my possessions and followed the footsteps of pioneers, gold rushers, dust bowlers, and dot-commers in search of the West of the Imagination.  In fairness, it’s a stretch to say that I packed since the rest of the family got stuck with the stuff while I set out on the annual PE pilgrimage, going from one annual meeting to the next in search of enlightenment and meaning.

As my punishment for sidestepping the heavy lifting, the family got to fly west while I was demoted to driving.  Across country.  Alone.  In a minivan.  With two guinea pigs.  It probably doesn’t get any worse.  Aside from a nice dinner in Evanston with some truly Super LPs, the trip was a grind: interminable stretches of open road punctuated by fast-food rest stops and one-night cheap hotels.

To pass the time during the mad dash across the endless expanse of the Republic, I played “wave to the portfolio company,” the LP version of license plate bingo.  Initially, I’d hoped to take a leisurely journey and visit a bunch of companies along the way, but as the summer slipped away and the trip’s timetable tightened I settled for a hand-marked map and some dog-eared quarterly reports that I’d review each night; my hoped-for visits had turned into well-researched I-80 drive-bys.

It was still worthwhile, though.  With many hundreds of underlying companies, it can be tough to keep up with those firms not lucky enough to be the “impact companies” that take center stage at annual meetings or those unfortunate enough to be the “problem children” that occupy our Advisory Board time.  It was cool to contextualize (if perhaps from a couple of counties away) the businesses that we read about quarter after quarter in increasingly audited, but decreasingly informative, reports.  Those companies – with their ups and downs – represent the pulsating, vital, thriving quintessence of the economy.

I’m lucky to be able to watch these companies strive and struggle and (hopefully) succeed.  It’s almost as if we LPs get to be Olympic judges sitting in the best seat in the house, watching the action unfold right before us.  Except that we’re not just judging one event; instead, we’re taking stock of the entirety of the Games.  We get to gaze into the chaotic innards of the economy, and it’s thrilling, frightening, inspiring.

* * *

Since I sometimes seem so crabby about the PE asset class, people naturally ask me how I get up in the morning and put on my LP hat?  The answer is simple (and it’s not just that I’m a curious dilettante): I’m privileged to know some really distinctive people who invest in endlessly interesting businesses.  And I like to believe that these GPs are catalyzing change, helping their companies become more innovative, more competitive, more streamlined, more essential.

And that’s the beauty of private equity done right; you constantly feel the blowing of the Perennial Gales of Creative Destruction.  And these winds of change are everywhere: from the whippy lake squalls of the industrial Midwest where manufacturers reinvent themselves daily, to the humid and earthy gusts of the heartland where agriculture is exciting again, to the hat-snatching howls out among Wyoming’s burgeoning coal beds and wind farms, to the jasmine-and redwood-scented breezes of Silicon Valley where every garage awaits a moment in the spotlight.

* * *

Before we left the East Coast, the kids and I hoofed it up to Brooklyn to visit the grandparents.  (Every trip comes with a complimentary helping of immigrant wisdom slathered in portent: “son, where you’re going, I’ve been . . .”)  And whenever we visit, I always walk my daughter, G, around the old ‘hood to give her a feel for a place that’s unlike the leafy college towns in which she’s grown up.  I love telling her about the people who passed through the neighborhood, the teeming masses who started their American adventures right there.  The storefronts help to tell the story:

“Check it, G.  That’s where Giovanni’s shoe shop used to be.  He came from Sicily at age 11 and started fixing shoes the same day he got off the boat . . . that Polish travel agency over on Church Avenue, I remember they gave away pierogies the day they opened . . . see that Bangladeshi grocery over there?  That’s where the Ruiz family had their bodega before they moved up to New Rochelle . . .”


“Yeah, G?”

"America’s like a blackboard, isn’t it?”

“How so, G?”

“People keep writing on it, erasing it, and writing on it again.”

“You know what G?  You’re absolutely right.”

A breeze kicked up in the gloaming and we turned the corner onto McDonald Avenue.  “Look around, G.  By the time we get back here, some of this stuff will be gone, but most of it will still be around.  You miss what’s gone, but appreciate the energy and the passion of the folks who are still there.  That’s continuity and change, and it’s what makes this place and this time so much fun.”