Warren Buffett once said, “You’re looking for three things, generally, in a person. Intelligence, energy, and integrity. And if they don’t have the last one, don’t even bother with the first two”. When you are looking to invest in a small company, often a private company, there is very little to base your assessment on. Track records are often short and financials can be skewed. So, one of the key factors we turn our attention to is the quality of the management team. For small businesses, it really all comes down to the human factor - people, striving towards a common goal. And, as Buffett puts it, there are three attributes that count.
Intelligence – we talk to a whole host of people from past and current employees, to professors and mentors. We analyse past decisions and try to identify the mental models they use to operate. Energy – how did someone get to where they are today? Did they inherit or build from the ground up, how many trials and tribulations did they overcome on the way? A history of hard work can be a predictor of the future. Integrity – what do people value above all else? What they say and how they react during a rough patch can be two different things. Watching how someone navigates choppy waters and, in particular, how they prioritise to overcome obstacles can be a strong indicator of integrity. If we are signing on to a ten-year relationship, then we had better be sure that we have backed a team that can deliver.