Why Looking for the Right Founder Is Important Ep 644

Summary Notes


In this insightful discussion, the host of "the game" shares valuable insights on evaluating businesses for investment, emphasizing the critical role of the founder's character. He reveals that 80% of their investment decision hinges on the founder, as traits are harder to change than beliefs or skills. The host identifies four major red flags that could disqualify a founder: excessive ego, lack of focus, emotional reactivity, and poor leadership dynamics. He underscores the importance of discipline and the ability to say no as key to maintaining focus and building a substantial business over years. The host also offers practical advice on personal development, advocating for self-awareness and emotional management to become worthy of building a successful enterprise.

Summary Notes

Building a Business Worth Owning

  • Focus, determination, and perseverance are essential for building significant businesses over years, not months.
  • The goal of acquisition.com is to build a billion-dollar venture and document the journey, unlike Bezos, Musk, and Buffett.
  • Sharing knowledge on evaluating companies and founders for investment to help others apply these principles to their own businesses.

It takes focus and determination and perseverance to continue to build something big. It takes years, not months. I'm trying to build a billion dollar thing with acquisition.com. I always wish bezos, musk, and Buffett had documented their journey. So I'm doing it for rest of us. I want to talk to you about some of the things that we look at in the companies that we're looking to invest in.

The quotes highlight the importance of long-term commitment and the unique approach of acquisition.com to build and document the creation of a substantial business. They also introduce the intention to share investment insights with others.

Evaluating Founders and Companies

  • The evaluation of potential investment opportunities is based 80% on the founder, as the founder's attributes are the hardest to change.
  • Market and business model can be adjusted, but the founder's core cannot, hence the focus on the founder's character.
  • Service eLearning and coaching businesses based in the US with $3 million or more in annual revenue are the baseline criteria for consideration.
  • The market served and potential business improvements are secondary to the founder's qualities.

80% of our decision is weighted around the founder. I can change the market that we're serving. I can change and improve the business model that we're using. I cannot change the founder. If the business is doing 3 million or more a year, they're a service elearning, coaching type business. If they check those boxes, they're us based, et cetera.

These quotes explain the investment strategy's focus on the founder and the basic requirements for a business to be considered for investment. They emphasize the founder's importance over other aspects of the business.

Disqualifying Factors for Entrepreneurs

  • Entrepreneurs are assessed based on their beliefs, skills, and traits, with traits being the most challenging to influence.
  • Beliefs and skills are malleable and can be changed or complemented, but inherent traits are deeply ingrained.
  • Ego is the most significant disqualifying trait; while confidence is necessary, any hint of excessive ego or posturing is a red flag.

So this will hopefully be hugely enlightening to you in terms of looking inwardly at your own character traits, because there are three things that kind of comprise the entrepreneur themselves, as I see it, right? You've got belief skills and traits. The beliefs I can change or break. Skills. I can help them acquire skills, or I can fill up their team with people who already have the skill to help grow the business, right? Traits are the ones that are very, very difficult.

The speaker offers insights into how entrepreneurs are evaluated, distinguishing between alterable aspects like beliefs and skills and the more fixed character traits. The quotes emphasize the challenge in changing an entrepreneur's fundamental traits, setting the stage for the importance of traits in investment decisions.

Ego in Founders

  • Disqualification of companies often due to the presence of ego within the founder.
  • Ego is a significant factor in deciding whether to work with someone.
  • Success of individuals with ego is acknowledged but not preferred for collaboration.

"And so, number one, and by far the number one reason that we disqualify companies is that we find some sort of ego within the founder."

This quote emphasizes that the primary reason for disqualification is the detection of ego in founders, which is a critical factor in the selection process.

Focus and Attention Span

  • A lack of focus in founders, demonstrated by running multiple businesses or being scatterbrained, is a red flag.
  • The ability to maintain a train of thought and communicate effectively is crucial.
  • Focus, discipline, and the ability to say no are necessary for long-term success.
  • A strong "no muscle" is important, and the lack thereof is a concern.

"So if we have a founder, and this is kind of in two ways, you can look at it, some founders come in and they're like, well, I have six businesses immediate. No, right? No, thank you. You can't focus. No, thank you."

This quote illustrates the immediate dismissal of founders who lack focus, as evidenced by their involvement in multiple businesses, which is deemed incompatible with the required dedication.

"And so you have to have somebody who can lock in on a target and drive towards that for years. And that takes focus, and that takes discipline. And discipline means saying no."

The quote highlights the necessity for a founder to have focus and discipline, including the ability to reject distractions, to achieve long-term objectives.

Emotional Reactivity

  • Emotional reactivity is a disqualifying trait, as it can lead to an advisor becoming more of a therapist.
  • Emotional reactivity often correlates with a lack of focus.
  • The desire to avoid playing the role of a therapist is strong.

"So, number one, ego. Number two, focus. Number three, emotional reactivity. So if I see someone who I sense I think is going to be emotionally reactive, they're going to have ups and downs and swings, then I know that what's going to end up happening is I'm going to become a therapist rather than an advisor to the business."

This quote explains that emotional reactivity in founders can transform the advisor's role into that of a therapist, which is undesirable and leads to disqualification.

Leadership Dynamics and Interpersonal Issues

  • Strife, drama, misalignment, and resentment within the leadership team are red flags.
  • Issues such as unsupportive spouses or equity imbalances among co-founders can create problems.
  • A complex cap table with too many voices can hinder decision-making and progress.

"The next one, when it comes to founders, is, what's the leadership dynamic look like? Do we sense any kind of strife, interpersonal drama, misalignment, resentment, anything that we can kind of suss out?"

This quote points out that negative leadership dynamics, including various forms of interpersonal conflict, are carefully evaluated and can be grounds for disqualification.

"Or if we just have a super complex cap table, which means that there's a zillion people who have ownership. It's like, oh, there's too many people who have a voice in this. It's going to be a pain in the ass to get stuff done."

The quote addresses the complications arising from a complex capitalization table, indicating a preference for simpler ownership structures to facilitate easier management and decision-making.

Company Evaluation Criteria

  • Assessment of a company's potential for assistance or acquisition involves four main criteria.
  • The first criterion is the presence of ego within the company's leadership.
  • The second criterion is the company's focus both on a macro level (number of businesses they operate) and on a micro level (ability to concentrate on current topics without distraction).
  • The third criterion is the level of emotional reactivity, which indicates how the company's leadership reacts to feedback or stress.
  • The fourth criterion is the dynamics of leadership, particularly among co-founders or between founders and key operators.

"And so those are the four big ones that we're looking at when we see a company that's coming in as, number one, do they have ego?" "Number two, how focused are they on a macro level, as in, do they have lots of businesses or do they just have one?" "And then on the micro level, can they just focus on what we're talking about right now without going off on crazy tangents?" "Number three, what is their level of emotional reactivity?" "And then the fourth one is the leadership dynamics at the top."

These quotes outline the four key areas of focus when evaluating a company: ego, macro and micro-level focus, emotional reactivity, and leadership dynamics. These factors are critical in determining a company's suitability for assistance or acquisition.

Focus and Improvement

  • Focus is crucial for effective leadership and business management.
  • Improving focus involves removing distractions and learning to say no to non-essential commitments.
  • The tactics for improving focus include calendar management and prioritizing tasks.
  • A detailed approach to improving focus is explored in a video titled "the woman in the red dress."

"And the way you work on focus is by, one, removing things, and two, saying no." "That's the tactics of focus, right? Is that you look at your calendar, you remove things, and you say no to future things."

The speaker emphasizes the importance of focus and provides practical advice on how to improve it by eliminating distractions and being selective about commitments. The reference to the video "the woman in the red dress" suggests a resource for deeper understanding.

Leadership and Judgment

  • Leadership judgment, particularly in hiring and team dynamics, is a critical component of a company's success.
  • Poor judgment in selecting team members can lead to questioning the founder's overall judgment.
  • Ignorance or a lack of awareness can contribute to poor hiring decisions.
  • Improving judgment involves learning from those with successful track records and validating hiring decisions through multiple opinions.

"And then the fourth one is the leadership dynamics at the top." "This person has no idea what they're doing." "Is this person so unaware that they can't see this?" "If you have a terrible people picker, that's a hard problem to fix."

These quotes highlight the importance of leadership dynamics and the consequences of poor judgment when selecting key operators or co-founders. The speaker suggests that a lack of awareness or poor character judgment can hinder a company's ability to scale effectively.

Recognizing Talent and Intuition

  • Recognizing talent and having good judgment, referred to as "picker," is an innate skill that can be crucial for business success.
  • Some individuals, like Layla, have an exceptional ability to assess character and predict issues.
  • Relying on people with a proven track record can help shore up deficiencies in one's own judgment.
  • Intuition can sometimes reveal undisclosed issues within a company.

"Somebody who has an amazing picker, like, freaky good, is Layla." "I think Layla has a better picker than I do." "They're not telling us something." "And I hired, permanently hired Layla to shore up my deficiency there."

The speaker acknowledges Layla's exceptional talent in judging character and intuition about underlying issues in companies. The speaker's decision to hire Layla demonstrates the value placed on this skill and the importance of complementing one's own abilities with those of others.

Personal Development and Self-Improvement

  • Recognizing personal shortcomings in choosing partners and teammates.
  • Importance of complementing skill sets and mutual support in partnerships.
  • The necessity of self-improvement in various personal traits to build a successful business.

I picked bad partners. I picked bad teammates. I picked people who didn't complement my skill sets.

This quote emphasizes the speaker's past mistakes in selecting partners and team members who did not have complementary skills, highlighting the importance of good judgment in these choices.

Ego Management

  • Advises to talk less, listen more, and accept that one's current beliefs may be wrong.
  • Suggests using the idea of future self-reflection to maintain humility.
  • Emphasizes the goal of being "less wrong" rather than "more right."

So if your ego, it's like, talk less, listen more, and realize that you're probably not right.

The speaker suggests that by talking less and listening more, one can better manage their ego and open themselves up to the possibility that they may not always be correct.

Stress and Emotional Reactivity

  • Strategies for managing stress and emotional responses.
  • Importance of not making decisions when emotional.
  • Discusses the difference in emotional recognition between men and women.
  • Suggests increasing the time between a stimulus and response to improve decision-making.

And so I think if you can develop frames around managing your own stress tolerance and increasing your tolerance around stress, and how quickly you come back to baseline will yield spades.

This quote highlights the value of developing personal strategies to manage stress and emotional reactions effectively.

Interpersonal Dynamics in Business

  • The significance of clear roles and responsibilities in founder dynamics.
  • The need for fair compensation and addressing interpersonal issues.
  • The impact of these dynamics on potential investors' decisions.

And then with founder dynamics, clean that shit up. Clear roles that have to be defined between who does what rather than lots of overlap, lots of mishmash, making sure everybody's okay with the way that they're being compensated and that any kind of interpersonal dramas are aired.

The speaker stresses the importance of having well-defined roles, fair compensation, and open communication about interpersonal conflicts within business founder dynamics.

Building a Successful Business

  • The correlation between personal worthiness and the ability to build a large business.
  • The concept that desire alone is insufficient without personal growth and worthiness.
  • Encourages working on oneself to achieve one's business aspirations.

Like the world doesn't care how much you want it, right? The world only cares who you are. And so I think you have to work on yourself to do the things to become worthy of the things that you desire.

This quote conveys the idea that personal development and self-improvement are crucial for achieving success in business, as the world responds not to one's desires but to who one is as a person.

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