Weekly Thoughts



Just Part of the Deal

They say that experience is what you get when you don’t get what you want.  The good news is that after starting Chenmark in 2015, we have gotten lots of experience.  For instance, when analyzing our first deal, we thought we built out a pretty fancy financial model.  Until we bought the company.  Then we quickly realized we failed to properly account for the timing of cash flows (working capital is pretty important).  We certainly didn’t factor in the impact of a key sales employee quitting.  We didn’t account for the year-long operations disruption associated with evaluating and implementing a new ERP system.  We didn’t reserve funds for the cash impact of a credit card limit being unceremoniously cut.  We didn’t properly quantify inherited technical debt.   Nor did we forecast the cost of having to work with high-maintenance customers who felt it necessary to renegotiate pricing with the new owners.  This is all to say, our fancy three-statement financial model, despite being a good place to start, missed some things.  In its place, we got some experience. 

A recent Seth Godin post titled Startup Costs resonated with how we now look back at these misses: 

“It’s typical to include machines, rent, stationery, all that stuff.

But the real startup costs are the missteps, errors, and learnings that every new project goes through on the way to success.

They’re not mistakes. They’re part of the deal.”

We have come to understand that no matter how sophisticated our analysis is, we will always miss something.  We deal with this uncertainty in three ways.  First, we are transparent about our mistakes and try our best not to repeat them so, at the very least, we only make new mistakes.  Second, we underwrite deals and projects conservatively to provide ourselves with a margin of error.  Finally, to make sure we are not too pessimistic, we ask ourselves what might happen if things go right. 

Now, our lived experience is what shapes much of our business framework.  As Godin points out, the mistakes we will inevitably encounter along the way are not surprising, they are just part of the deal, so we might as well just get to work and stop worrying about being perfect.

Have a great week,

Your Chenmark Team

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