Invest Like the Best with Patrick O'Shaughnessy
· Martín Escobari
[00:00:00] S1: The universe of amazing companies that expanded, the number of $100 million revenue business is growing 40%, 50% has grown 10X because more technology, more people taking risk in more places. Unfortunately, we compete against 19,000 GPs. It was not very nice thing to say, but one of my competitors said there's more GPs than McDonald's in the United States, which it's one of those GPs that are smaller. They didn't feel like when you compare to my... But it's too many GPs and the industry is consolidating. It's becoming incredibly competitive. You have to have more clarity what is your competitive edge. How have we thought about our edge? Brand. We've built this brand about being good partners. This brand needs something. People get value from GA inside that tracks, helps them recruit talent, get clients, go public, scale to have muscles that small shops don't have. We have 100 people in operations. They can help you with pricing, sales force effectiveness, AI for customer serves, whatever you need, we got a team, it's there for free. We got an in-house human talent team that has taps into a database of 15,000 veteran executives. You need a CTO who'll send you a list tomorrow. We have eight guys in the area who we've worked with and I think fit, that's an area. And then, you have to be a specialist. Can't be a generalist anymore. So we've chosen what we call the GA Power Alleys. There are 16 Power Alleys, things like AI applications, value-based care, digital payments, 16 Power Alleys, check the website. In those Power Alleys, we think we're among the best in the world and we show up with 32 case studies. We've done this 32 times and yes, you can copy things that work, but guess what? You don't know the things that didn't work, that we tried, that were going to prevent you from trying. It's made it harder to compete, but I do think scale and experience helps provided you are deliberate at learning from the experience and focused on how you build capabilities with scale in areas that really matter, not just look good on a website.
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: If you're teaching a seminar about or for young investors who are only allowed to go invest in non-US companies, so everything but the US, what are the most important things for that crew to know about doing that well, that's distinct from what it would take to do well in the US? [00:00:00] S1: There's a lot more volatility. The frequency of surprises is much higher, so agility is super important. We're also low trust cultures, even though most of them are religious, doesn't mean we contrasted. So a higher percentage of the time, you may find yourself with a crook across the table. So the value of referencing is much more important and how to do a good reference is super important because people don't say bad things about other people easily. So that's another one. The third one, which is a positive one, which is the one great advantage of being outside the US is there's so many things that don't work well. [00:00:00] S0: Lower hanging fruit. [00:00:00] S1: Humongous lower hanging fruit, and if you provide a great service, you capture a lot of value for a really long time. [00:00:00] S0: How do you do a good reference? [00:00:00] S1: For an investment, you do it with a family that has given you money to make investments and you say, "João, we're about to invest $200 million in this entrepreneur. You know his father, you know his grandfather. Do you think we should take this risk?" And he's like, "João, no fucking way. He's a crook, son of a crook." Because he has money with you, he tells you the truth. If he didn't have money with you, he'd say, "It's fine."
· Martín Escobari, Patrick O'Shaughnessy
[00:00:00] S1: For an investment, you do it with a family that has given you money to make investments and you say, "João, we're about to invest $200 million in this entrepreneur. You know his father, you know his grandfather. Do you think we should take this risk?" And he's like, "João, no fucking way. He's a crook, son of a crook." Because he has money with you, he tells you the truth. If he didn't have money with you, he'd say, "It's fine." [00:00:00] S0: Of course he'd say, "I don't know, there's some noise. I would do my homework, or they're fine."
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: Of course he'd say, "I don't know, there's some noise. I would do my homework, or they're fine." [00:00:00] S1: For hiring, there's another hack which I learned, which is so important. So much of life is getting the right people on the bus. When you're going to do a reference on a hire and you call the person and you say, "Hey, we're considering David for this role. This role involves the following five challenges. This is a very important decision for my company because we can't get this wrong. It's also a very big decision for David because he's happy at his job, and if he gets this wrong, if we get this wrong, we've wasted time and he's out of a job. Help me assess if this is a good risk for me and David. And if you can have an honest discussion, if you don't feel comfortable engaging like this, let's not talk about it, but that's what I need the reference for." You'd be surprised. People are like, "Well, for that risk, David now, leaving there it is fine." But that is a genuine way to answer it because what I described is actually true. If this is a bad fit, David should not be taking this job. Reference calls are not, tell me about David. Is he a good guy? That's a waste of time. People say, "Yeah, he's a great guy." [00:00:00] S0: Very good guy. [00:00:00] S1: He's a great guy, very competent.
· Martín Escobari, Patrick O'Shaughnessy
[00:00:00] S1: He's a great guy, very competent. [00:00:00] S0: What have you learned about managing help manage the career success of investors, which is a very distinctive job from a career ladder in a company or something. Incentives matter a lot, I'm sure. I'm curious what you've learned about incentives. What mistakes have you made? If you think about you being responsible for other investors and you wanting them to thrive, what's the good, the bad, and the ugly that you've learned?
· Martín Escobari
[00:00:00] S1: It's an apprenticeship business. Pairing them up with different people with different skills, different styles is super important. Helping them from a very young age to make recommendations. Don't just do the task, answer the so what. And ultimately say, "What's my level of conviction in doing this investment?" Don't rely just on this more senior people. One of the tricks I used to do is I've been in three investment committees in my career on 3G, I've been in - and I would try to understand the mind of each investment committee member and predict what they're going to ask. So I would read the memo and say, "George Rapallo is going to ask this. Bill Ford is going to ask this. Juan Carlos Torres is going to ask this." And I also predict their votes. By the end of a year of doing this, I was up to 80, 90%. And what was really interesting is it forcing me not only to have my own opinion about a deal because I would read the materials, but look at it from the perspective of someone who's really good at making these kind of decisions. And my ambition was to one day be completely unpredictable when someone tried to do this with me when I became a senior person because I was capturing learnings from 30 perspectives, it's not true, I'm actually pretty predictable by now. It's learning vicariously by forcing yourself to have opinions and also putting yourselves in the minds of people who are proven investors is a way of the apprenticeship on steroids. And one of the things that we do at GA, which I'm really proud of because it was culturally very hard to do, our investment committees are open to everyone.