6-22-09
Too much ambition is an extremely difficult pitfall for most new investors to understand, but if a person comes to you full of fire, vim, vigor and ambition, WATCH OUT! Of course, a healthy case of ambition is a requirement for any private equity investment to succeed, but too much ambition on the part of management can be harmful and will lead to failure.
What happens is that the fire soon burns out, the vim dims, the vigor moves on and the ambition gets bored – frequently lighting off into a new venture, leaving you holding the investment bag.
What we look for in a manager or potential investee is a patient, steadfast person who arrives at the office according to the necessary schedule, works diligently completing the required tasks and schedules tomorrow, efficiently, calmly and patiently. Someone who loves the work and enjoys the life they have created. They do not talk about the work with a fire in their pants like everything has to be done today, they steadily conduct themselves in a calm manner, outlining tasks, assigning duties and monitoring the required tasks, keeping the schedule as it unfolds. They think about what they are doing and saying and are diligent about the work that needs to be done.
It’s hard to pre-determine when ambition is at the appropriate level. Success in prior efforts can instill ambition in a person. Conversation about supporting a family and putting children through college are good signs in an investee, as is talk about what you, the investor, will get out of the relationship.
A brief story about ambition. A very close friend of mine had a graduating son who would soon need an income. The child had not worked during his college career, so he had no track-record of any type of work ethic. He made poor grades and just managed to graduate.
The son convinced dear old dad, with typical youthful vigor and enthusiasm that the two should go into business together. Dad reluctantly agreed. He borrowed the money to purchase a sandwich franchise for his twenty-something child to own and manage on a daily basis. The books looked acceptable, in the beginning, but the shop never reached those numbers.
The father was hopeful that his chances for success had improved when the son jumped in with his youthful enthusiasm. But the son stuck with it all of about 90 days. Boredom soon set in and the son decided to move on to tending bar at a local night club, leaving his father — his investor, his partner, his financier, as an absentee owner (he lived a distance from the property) with no responsible party able to assist him in running the business. The son bailed out, unapologetically leaving dad to clean up the $375,000 mess. The investment was a total loss. The son’s ambition had outpaced his ability to complete the task at hand, and the father, seeing the program through jaded eyes, could not discern that his investment was in trouble from the very first dollar. Dad made a poor business decision which cost him hundreds of thousands of dollars. This type of ambition is very frequent and must be avoided at all costs.
When my friend told me what had happened, I cringed. Now, when he is looking at a private investment, we discuss it beforehand.
The solution to this problem would be to make the son work in a franchise store for a minimum of one year. If the son liked the work, enjoyed the life and was attentive to the business, then the father could have been much more secure in the investment, knowing that the son had at least one year of actual hands on the onion roll’s experience.
In my private equity practice, the way that we make this determination is that our investees must show extreme patience. They must show staying power. We do this by drawing out the process. Sometimes an investment will take as much as a year to finalize. It is not that we cannot move fast and make a decision, but if the Investee stays with the process, works through the “patient time” and sees it through to the end, we are almost certain that they have the staying power and patience it takes to maintain the business in a profitable position. This weeds out the con men and “fly by night” people who are trying to get to us for a quick profit.
See what types of programs we are currently working on at: http://www.farpointadvisors.com
Purchase a copy of my new book: “Winning With Private Equity” at http://www.winningwithprivateequity.us.
Thanks for reading,
Paul A. Thomas, Principal
Farpoint Private Equity Advisors
Abilene, Texas
325-695-1329
