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Is Sustainability… Sustainable?
I think we all look for signals that guide us to what might happen next. And in business and investment, we look out for changes that deliver opportunity or risk.
One of my investments went into liquidation recently. The liquidators’ report made me laugh, but also gave me a couple of lessons and an insight into what might happen next…
Here is the CEO’s announcement:
“I write to provide you with an update regarding XXXX. XXXX has encountered serious challenges over the last year. The markets in 2022, and continuing through 2023, have been difficult across many industries, including ours, where diversity, equity, and inclusion officers of many companies have increasingly lost their jobs due to layoffs. Those difficulties presented insurmountable challenges for XXXX and directly impacted our efforts to not only grow our business but to even sustain it.
In both 2022 and 2023, we aggressively pursued investors who could replenish XXXX’s working capital and put XXXX back on a track where we could meet our operating costs and work down our payables. We also aggressively pursued potential acquisition transactions to allow XXXX to meet its obligations. Throughout, we have worked with our counsel and financial advisors to pursue every reasonable path potentially available to provide the best landing for XXXX and the best outcome for its stockholders.
Regrettably, notwithstanding these efforts, no investment transaction, or acquisition transaction came to fruition. XXXX was thus unable to secure sufficient capital to support its operations. XXXX cut all payroll expenses and all other expenses that it could, including, in January 2023, my salary. XXXX worked diligently to reach satisfactory arrangements with its creditors, but wasultimately unsuccessful in resolving all disputes with creditors. XXXX simply does not have the capital to continue the business.
So, what was this company doing, and what are the lessons?
Firstly, the hypothesis was that everyone cared about diversity and accepted that diversity in teams drove better outcomes. That is what the research said. Be careful of research saying, “Meritocracy is dead; you need teams populated by diverse genders, races or whatever.”
Lesson one: understand the difference between research and marketing.
So, this high-profile woman who reminded me of Elizabeth Holmes in terms of energy (of course, she is now in jail, Elizabeth, that is), and her gig was gender balance. In other words, all businesses and teams should be half male half female by design. Bugger me. She had developed a system to measure team balance and bias in selection and management based on gender. Her plan was to prove that profits improved from businesses that pursued more women in leadership and teams. And that is what her research showed – no surprises.
My initial reaction to my co-investors (primarily women) from NZ in this US company was,
“You know I don’t believe in any of this gender stuff, I believe in people, and the only diversity I want in business is thought diversity across teams of smart people.”
A leading activist’s answer to this was, “Bruce, it doesn’t matter what you believe, everyone else believes it, and they will pay for it; this will be Big.”
Well, yeah, I get that you never get in the way of fools and their money and at that time, rooting out the men and bringing in the women for the sake of it was big everywhere. And it still is, for example, on boards. Read a few public company reports. They all report on diversity, and they do so because some pressure group, in this case, a subset of women, has convinced investors and others they should care about it. So, heck, maybe I think my partner in this is right.
Lesson two: don’t invest in anything you don’t believe in, and don’t build an investment case on belief systems that might fade or can’t actually make businesses better. Or… trust your gut.
I get the sense pretty early on that this very focused woman is a bit, well, strange. Every communication is signed, “Be Brave.” I think, “Be careful, be real, be smart,” but no, this woman CEO is ‘Brave’. It was the catch cry of her generation and her playing to her audience. I sensed it was fake.
I started a series of ‘Be…Phrases’ in all my replies, hoping she would see the funny side. You know, evangelists and radicals rarely have a sense of humor.
Lesson three: don’t double down when your gut was proved right. (but I didn’t have to learn this).
Lesson four: avoid radical nut cases, avoid fake ones, and avoid the humorless.
Sometimes, I still have to remind myself of lesson four, and the older you get, the less time you have for fake and humorless. It is best to learn that lesson early and keep reminding yourself.
This company’s order pipeline was enormous, but nothing seemed to close. So, we insisted on a product demonstration and wanted a sales pitch from the product team. As a result, we (one a corporate CEO and the other me as a director owner) had an idea convergence. My CEO partner shared the idea because my brutal communications offended “Be Brave’s” proper attitude.
We had an idea of how to re-pitch it. While gender diversity was front of mind for this chick, thought diversity and an open mind to ideas was not.
Lesson five: avoid people who are not open to considering and intelligently debating alternative thoughts.
I asked the Founder CEO how the company was doing, but she refused to give me any information. She only talked about the fantastic pipeline and opportunities the company had, which seemed like a classic case of pump and dump. I couldn’t help but think of people like Elisabeth Holmes. At that point, I knew that this would not end well.
At least I wrote it off at that point so the final death notice was hardly a surprise.
So now the lessons from the death notice…
Lesson six: aggressively pursuing investors: the more you chase stuff the faster it run.
Lesson seven: acquisitions to meet your obligations: if you have to buy some other business to deliver your value proposition, then you don’t have one, give up or sell.
Lesson eight: working with lawyers and accountants: you are probably already dead if you didn’t already know it.
Lesson nine: Disputes: if you are plagued by lots of angst from lots of sides: it is probably you, so get out of your worldview, really understand the other side and find a compromise.
Now, the laughing matter insight and what it might mean for 2024.
“Diversity, equity, and inclusion officers of many companies have increasingly lost their jobs due to layoffs.”
Lesson ten: understand the difference between the need to have and nice to have and realise that if a nice to have can’t pay for itself, you will abandon it when the money runs out.
The top Fortune 500 companies in the US are no longer concerned about gender diversity. They have taken the logical step of dismantling the teams that were responsible for it. It makes me wonder, what will happen next if the situation continues to worsen?
Probably sustainability and a lot of other stuff that struggles to attribute revenue to it. I expect the drive to carbon neutral, recycling, removing plastic, and all manner of things that we fret about won’t matter if businesses and then households struggle to keep enough cash coming in to pay for the essentials.
In short, the big question is, do we really care about all this stuff? Or do we only care about it because we have enough and are struggling to find something more tangible to care about?
Alternatively, because we have enough, is it that we can’t be bothered focusing on creating better businesses to increase the pie for all? Or is being better too hard? Is it easier to ignore the simple reality that if things can’t pay for themselves, they are not sustainable? Is all this PC, WOK crap just a way for us to avoid responsibility and accountability and avoid focusing on what matters? Which is building a profitable and growing business – the only sustainable platform that can pay for our big dreams.
A lot of this stuff will get abandoned in New Zealand. With GDP declining in nominal terms, worse in real terms with inflation adjusted and worse again per capita.
2024 is going to be about getting back to basics.
To end on a slightly higher note…
Have a break and take the time to be reflective as hopefully the sun shines this summer.
Don’t forget all things pass, and if you remain focused on supporting your community, engaging your team and having an aspiration goal, growth will result.
If you focus on the basics operationally, that growth will be profitable. If you are diligent with your partners and supportive of your community and trading relationships and build relationships based on a ‘no assholes policy’, cash will drop out and all will be good.
And above all; see the funny side in all the aberrant human behaviour. It’s just easier that way, and it’s easier if you don’t take yourself too seriously.