Investment advice from Destiny’s Child
There are a fair number of people who struggle to say “no” to incoming requests, be they personal or professional, even if those requests don’t align with their individual goals. A colleague urges review of a document ASAP when actually the work falls into a Quadrant Four activity (not urgent and not important). A random acquaintance asks to get together for a drink after work when really you should be hitting the gym or spending time with your kids. You offer time and time again to take the lead on a project to “help the team” but the additional burden actually hinders your ability to do your job. A 2017 New York Times piece provided some insight into this tendency: “Humans are social animals who thrive on reciprocity. It’s in our nature to be socially obliging, and the word no feels like a confrontation that threatens a potential bond. But when we dole out an easy yes instead of a difficult no we tend to overcommit our time, energy and finances.”
Funnily enough, on the deal-making side, we actually find ourselves with the opposite problem: we find it very easy to say no. While we’d like to think part of this is due to our being disciplined investment professionals, if we are totally honest, in some cases “no” is probably more of a defense mechanism against more work and against risk than it is a discerning investment strategy.
Now, we are not saying we should be reckless in our deal-making process. Rather, we must spend just as much time thinking about what might happen if the deal goes right as we spend thinking about hoarding resources and protecting the downside. On that note, we have been thinking about a Knox College commencement speech given by comedian Steven Colbert back in 2006:
“Say ‘yes’ as often as you can. When I was starting out in Chicago, doing improvisational theatre with Second City and other places, there was really only one rule I was taught about improv. That was, ‘yes-and.’ In this case, ‘yes-and’ is a verb. … And yes-anding means that when you go onstage to improvise a scene with no script, you have no idea what’s going to happen, maybe with someone you’ve never met before. To build a scene, you have to accept. … You have to keep your eyes open when you do this. You have to be aware of what the other performer is offering you, so that you can agree and add to it. And through these agreements, you can improvise a scene or a one-act play. And because, by following each other’s lead, neither of you are really in control. It’s more of a mutual discovery than a solo adventure. What happens in a scene is often as much a surprise to you as it is to the audience. Well, you are about to start the greatest improvisation of all. With no script. No idea what’s going to happen, often with people and places you have never seen before. And you are not in control. So say ‘yes.’ And if you’re lucky, you’ll find people who will say ‘yes’ back. Now will saying ‘yes’ get you in trouble at times? Will saying ‘yes’ lead you to doing some foolish things? Yes it will. But don’t be afraid to be a fool. Remember, you cannot be both young and wise. Young people who pretend to be wise to the ways of the world are mostly just cynics. Cynicism masquerades as wisdom, but it is the farthest thing from it. Because cynics don’t learn anything. Because cynicism is a self-imposed blindness, a rejection of the world because we are afraid it will hurt us or disappoint us. Cynics always say no. But saying ‘yes’ begins things. Saying ‘yes’ is how things grow. Saying ‘yes’ leads to knowledge. ‘Yes’ is for young people. So for as long as you have the strength to, say ‘yes.’”
The reality is that when evaluating the purchase of a small business, there is always a reason to say no — there is simply no perfect deal. There will always be something wrong with the financials, the add-back justifications, the finickiness of the owner, the employee practices, the location, the valuation, or the legal contingencies. That’s probably why so few actually find and close deals in the small business space — they are searching for something that doesn’t exist. So, for our team, we have made a commitment that when evaluating deals, we should remind ourselves that sometimes “sayin’ no, no, no, no, no, when it’s really yeah, yeah, yeah, yeah, yea” will be a good way to keep us open to new ideas and new opportunities.