Things that you learned the hard way. Things that bear regularly revisiting. Things that if remembered will make your life easy, and if repeated will make your life hard.
- Think about what you’re getting in to
- Think about who you are and the life you want to live
- The means must be viewed as an end – because that’s how they will feel, indefinitely.
- This is a due diligence item as important as any other – do I want this business and this life? Forget the economics, because you can find those elsewhere
- Try not to enter high entropy businesses
- Some things are easier to run than others. Avoid buying a shisha bar in the hood.
- Avoid businesses that require high amounts of trust that cant be easily assuaged by a) setting incentives and b) creating systems
- Don’t buy the first thing, and buy a wonderful thing at a fair price rather than a fair thing at a wonderful price
- Look for alternatives – is someone else selling something similar?
- Value and negotiation
- Your perception of value is inherently subjective and based on incomplete information. No matter how much you diligence, the seller knows more than you do.
- The principles you use to guide value may not be shared by the seller. This can be good or bad. Even when you think you’re getting a steal of a deal, consider that you may be hoodwinking yourself. What seems like a steal to you based on your multiples and “knowledge” may be an aspirational first ask for the seller
- Always negotiate
- Assume that the seller is smarter than you, has more information than you, and is minimally altruistic (maximally self-interested)
- Align the sellers incentives with your own
- Resist deal-fever at all costs. Be picky. Look for dissenting perspectives and invalidating data and integrate them into the thesis
- Do a lot more diligence than you want to, and build the anti-thesis with sincerity: you will be your own worst enemy if you don’t
- Expect that you will be invested and high on your own supply – ask intelligent people you trust to critically double check your work and suggest areas you might not have thought of
- Resist the urge to ignore or debate – accept that you are likely to be rooted in an inherently compromised position, and that’s okay. Just try to systemize around it.
- Intentionally invert your thinking to the extent possible – look for reasons not to do the deal
- It’s not just about the business – its about the industry, and its most importantly about the customers. Talk to others in the industry. Talk to the customers.
- Understand and make peace with the things you are inheriting that are obviously different than you would do them if starting from scratch
- Make note of these things so that you don’t get bogged down when working within the business and forget about them / lose the value of freshness in perspective that you first had
- Get directly involved in the day to day of the business as much as possible. Try to sidecar and do the bottom-up analysis of going on site and doing the math for yourself to support your top-down estimates
- To the extent possible, try actually operating the business before buying it
- What would it cost and how hard would it be to start something new instead?
- Directly ask where the bodies are buried, and incessantly look for them
- Many SMBs are not doing things fully above-board – tell them its ok, you get it, and ask for exactly what those are
- Underwrite only the tax-reported cash flows; do not give credit to cash
- Expect misses and delays, and budget for them in your forecasting
- Budget for missed items and delays, whether in financing, handover, faulty equipment etc
- There are bound to be unknown unknowns
- Budget for missed items and delays, whether in financing, handover, faulty equipment etc
- Be thoughtful about who you take money from, and what they expect, especially friends and family
- There will be ample opportunity for half-truths, and you will be best served in the long run by avoiding them
- Getting lending, deals across the line, whatever it is – refrain from doing things that will require remembering details that are different from the truth. It will weigh you down and exhaust you over time. Protect your sleep and conscience at all costs
- Communication, communication, communication
- Early, often, all the fucking time
- Good news, bad news, and no news, should all be reported and at the same cadence
- Let me repeat, in order of importance:
- Bad news must be noted, addressed, and communicated (even if just the first part is being communicated) with the highest degree of urgency and prioritization
- No news is news and should be investigated and communicated as often as everything else
- Good news: the least important, and should be tempered to the extent possible and reasonable. Truly: under promise and over deliver. And even when you over deliver, under acknowledge.
- You know this now: hard conversations are always 10x harder in your head than in real life.
- When in doubt, pick up the phone and call. Always prefer spoken communication to written. Calling is most always preferable to emailing and texting.
- The weight of things left unsaid will fill your bag with bricks and masquerade as exhaustion and brain fog – you will experience a step change in motivation, energy, and optimism, as soon as you exorcise your squatting secrets. The monster in the dark, no matter what the problem, at worst shrinks and at best disappears when you shed the light of transparency on it
- Refrain from hiring friends
- Entitlement and comparison can emerge, and is not easily dealt with. It is very hard to fire friends, as bad as they may be. Hiring friends also implicitly creates an environment where your other friends don’t say the things they might think. Professionalism goes out the window.
- It hurts a lot more when your friends are incompetent or even worse, intentionally stealing from you
- A business that operates entirely in the real world is extremely difficult to manage remotely
- People respond to incentives, and people are good, in that order. If all your customers and employees are around each other and in the real world, managing them remotely means trying to manage a 3d world while living in 2 dimensions. You truly don’t know what you don’t know.
- Assess the incentives of your employees, especially in relation to the larger environment
- Is there something you’re not thinking about, as it relates to your manager’s incentives? Are they friends with the customers? With the other employees? Will they be subject to forces stronger than you when you are not present?
- Consider making at least one personnel change early – there is likely to be a bad apple or two
- If the business has not been a wonderful business, its probable that negativity or a suboptimal culture has seeped into it and its people, or perhaps is created by certain people
- Quickly identify people that are either a) not effective and b) openly insubordinate and take swift action to improve, but honestly, probably remove.
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- The longer they are allowed to subvert and openly communicate their suspicions, criticisms, lack of belief, the more damage they will do
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- You are naturally pacifist and relationship-oriented; understand that the right strategy for you will require being a bit more aggressive and authoritarian early on than your intuitions might suggest. Not all people are good and well-meaning. There will be times where you need to be strong in the face of defiance and subversion.
- Respect is earned, and there are wise and sustainable ways to earn it
- In certain cases, the next best option is fear
- If you lie with dogs, you will get fleas
- Remove unsavory and ill-intentioned people, be they employees or customers, immediately and decisively. Do not associate with them. You will unintentionally send the wrong message wider than you can tell.
- Do not aspire to be friends with your employees – this can lead you down a troublesome path. Resist the urge to be fully open and friendly – this can compromise the ultimately business nature of your relationships.
- Be kind, respectful, engaged, and personable, but remember that your colleagues and employees are a different category of relationship than your friends.
- Don’t be like Ryan from the Office, but understand that even if you aren’t some people will see you that way
- Most people do not want to be forced under the tutelage of a young hotshot that they deem to be inexperienced, perhaps even undeserving
- Humility, eagerness, attentiveness, learning, hard work, all the other traits you know to be necessary, are required and will alleviate 50% of this. The remaining 50% may need to be addressed in another way, and are likely to be related to point #15
- Believe people and be generous with your willingness to trust, but diligently verify everything early on
- A 1000 foot view is only possible when you deeply understand the business and trust everyone and everything within it. This can happen over time – early on you must not be laissez-faire at all. You must be present and dialed in. If there is an office you must be in-person. You must get a feel for how things are running in the real world
- Find allies and champions early
- Pursuant to #15, there will also be people within the business, whether it’s the previous owner or perhaps even a customer, that respect you immediately and are interested and invested in helping you
- Ideally systemize economic incentives for these people (eg. previous owners)
- Otherwise, find these people and invest early and often in the relationship. This is the only way you will get a deep pulse on how people are feeling, how you are perceived, and better understand where the bodies are buried
- Dogfood everything early – have broad, sweeping “listening” sessions
- Improvement and innovation begins with empathy, whether its for your employees or your customers, and for empathy you need front-lines knowledge
- To the extent possible, spend deep time with every employee/function and truly understand what you have just bought and how it works
- This is easiest to do very early. The longer you wait to do this, the harder it becomes, and the more credibility you lose. Eventually after enough time it becomes out of reach
- Take this opportunity to record all your notes for how things could be better, as naïve and as misguided as they may be. Again, most of these things may be irrelevant or overzealous, but some wont be, and will fade out of view the longer you look at them. Use the power of novelty to your advantage.
- Participate on the front lines and talk to customers directly. Nobody will be able to offer better customer service than you
- Ask your customers what they want
- You are likely to care more about the customer than anyone else in the business. Take the opportunity to serve them to understand what they are asking for, what they need and are not asking for, and how to make it so that your employees are able to approximate the level of service that you can provide
- Eventually, stop working in the business and start working on it
- At some point you will need to get to a point where you have full trust in your organization: its people, processes, and problems, that you can truly operate at a higher altitude and begin improving the business
- Don’t rush to do this – the better you understand via firsthand experience what the business is, does, and needs, the better you will be able to uplevel it
- Reach out to your competitors – they are not to be ignored nor feared and have a lot they can teach you
- Never be afraid to ask for help – you are never alone
- Mentors, colleagues, friends, hired advisors – they want to help you
- If nothing else, they will give you a refreshed perspective
- Never hide when something has gone poorly
- Everyone that has done it, knows how hard it is
- Everyone has made mistakes. You are a bigger critic of yourself than others ever will be. Remember your conversations with business operators after the first time – no one judged you or blamed you, they understood and empathized. They shared their own stories of difficulty and misfortune
- Addressing things publicly usually makes them easier to resolve
- Refer back to #12
- Do not be afraid of legal threats and aggressive, malicious actors – you always have significantly more leverage than you may realize, others usually have less than they represent
- As you now know, often times lawyers simply represent the beginning of a conversation
- Never allow someone to bully you by way of appeals to the law or authority – you hold just as much power as they do. Be like Jeremy.
- Remember your power: you too can write strongly worded emails and negotiate aggressively
- Everything is up for negotiation
- Take the time to assess your counterparty’s motives and incentives. Think outside the box from first principles – there is always a creative solution out there that is a better outcome than you may have thought was possible
- Never split the difference
- Listen, listen, listen
- At all times, with everyone, a) listen to understand and b) reiterate what you have heard to ensure you have understood it. This is the single most powerful way to be close to truth. Be like Ramit. If you interrupt or argue with people enough, they will simply stop talking to you.