Three years ago we have met individually with around 15 private equity companies. This was a futile effort to get them to see the value of our novice supersynthesizer methodology. Uniformly, when PE firms look for outside help, they look for specific narrow industry expertise. Their goal is to maximize the market value of the portfolio company is the shortest time possible. The PE firm itself brings in the balance sheet strategies to change the value proposition. When they need more than that, the belief is that an industry expert will know all the tricks unique to that industry to boost value.
That mindset is still prevalent today. It was reinforced the other day when I sat in on a meeting of about a dozen CEO who are currently between assignments. One of them who has extensive background in food, and specifically in meat, met with a PE firm that has a company that produces brisket. Here is a seasoned executive who had been CEO of one of the worlds largest beef producer, but the PE firm was only interested in talking to CEO’s who had brisket experience.
This strategy worked well during the bubble. Lots of strategies work well during bubbles. But, it’s probably not the right strategy for today. The trouble is, over time this focus on industry expertise limits you success numerator. And today neuroscience provides some insight into why this is true.
In the broad reach of human history we are still cavemen. It is just recently that we’ve discovered technology. Cavemen did not perform repetitive tasks like we do today. Cavemen are natural experimenters. If all they did was try new things all the time they probably would not have survived. Our brains saved us. There is a mechanism in the brain that causes us to repeat success behaviors and eventually create a rigid structure around that behavior. This mental ossification is a natural function of how the brain processes memories to select successful patterns and behaviors. Because they are successful, the brain selects them as the guide for future behavior. And they become very rigid over time. As the psychologist Edward Tolman showed, this happens irrespective of the longevity of the success of the behavior. Repetition reinforces it and our confidence in the behavior grows. As a matter of mental economy over time the brain filters out the surrounding information as irrelevant to the success behavior. We lose the ability to see the need for change.
Each of us likes to think that is true of others, but not of ourselves. But great business leaders know that they have this obstacle to overcome. Their own certainty is their speed governor. To speed beyond that governor, the CEO must employ empowerment tools such as those we provide to such leaders. These let the leader remove the hurdle of their own mindset while making sure every dollar is invested wisely.