One of my favorite aspects of being involved in the financial markets is that you’re forced to continuous learn to be successful. The process never ends. My learning progression on the markets and finance goes something like this: I started out with theories from finance textbooks in school; then moved onto learning about how the markets are structured; next came the different schools of thought and strategy along with a crash course through books about the all-time great investors; and I finally realized how important human psychology and cognitive biases are to bring everything together.
Over the past few years I’ve become more and more interested in the business side of the equation. I’m always fascinated with the power of incentives on people’s actions and learning the best practices from successful financial firms (and un-learning the worst practices from unsuccessful ones). I think this is an area people don’t pay enough attention to when assessing risk in either investment options, career paths or potential partnerships.
I finally read Peter Thiel’s book, Zero to One, and thought there were some great business lessons throughout from the eccentric investor and businessman. For those who are unfamiliar with Thiel, he’s one of the founders of Paypal, an early investor in Facebook and the inspiration for the Peter Gregory character on the first season of HBO’s Silicon Valley. I didn’t agree with everything in the book, but you can tell the guy has a very unique mind for business. He makes you think, which is about all you can ask for from a non-fiction book. Here are four really great points he made about running or starting a business:
1. “In business, money is either the most important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can’t.” Thiel makes some interesting points in the book about the problem with starting a business in a competitive market. He prefers businesses that are able to create a natural monopoly. This is the moat that value investors are constantly on the lookout for. Creating that moat is easier said than done, to state the obvious.
I think this is also applicable to choosing the right firms to work for or with, but not necessarily from the perspective of finding a monopoly. Businesses have to make money, but it’s a great thing to come across an organization that isn’t forced to focus solely on profits. It’s amazing how successful firms can be profit-wise when their initial focus is on helping clients and creating a healthy organizational culture. There’s something to be said for those businesses that do things the right way.
2. “Inside a firm, people become obsessed with their competitors for career advancement. Then the firms themselves become obsessed with their competitors in the marketplace. Amid all the human drama, people lose sight of what matters and focus on rivals instead.” I like to say that there’s a difference between being competitive and being ambitious. Many in the finance industry are competitive for the sake of being competitive. In some firms, that’s just how things work. I’ve seen many instances over the years where people or organizations lose touch with their true goals and objectives because they’re preoccupied with the performance of their peers or external forces outside of their control. Learning best practices can be helpful, but envy and jealousy are a waste of time when you start to worry more about the competition than your own goals.
3. “Every startup should start with a very small market. Always err on the side of starting too small. The reason is simple: it’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.” This one is counter-intuitive, but figuring out how to narrow your focus down to a niche and master that specific area before trying to branch out and expand is key. Most businesses try to conquer the world right out of the gate and that rarely works.
4. “Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together. If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well – even in purely financial terms. […] So we set out to hire people who would actually enjoy working together.” This may have been my favorite section of the book. Thiel talks about building his team in the early days of Paypal. To him, it wasn’t about putting together the most brilliant individuals; it was about fostering the right environment by finding people who were passionate about what they were doing and making sure they all got along and actually liked each other.
One of the biggest flaws in the traditional HR hiring process is looking for the best resume to fill a position. The resume matters, but it’s worthless without considering the personality behind it and how the person will potentially fit within the organizational culture of the firm. That’s why my hard and fast rule is never hire someone you wouldn’t want to go out for dinner or drinks with after work.
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My new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan, is out now.