We've looked at quite a few deals in the last 4 years, and have executed on a decent number (~13). One thing I've noticed over the years is how our evaluations can differ dramatically when we think of ourselves as entrepreneurs vs. investors.

As investors, we are performance takers. We look at results that happen to us and interpret those results as feedback on the decision we made to invest, and we feed that experience forward into the investment process for the next deal. At it's core, this is buy-side PE. We learn to depend heavily on heuristics generated from observed (or perceived!) patterns in our experience. We expect to say 'no' most of the time, and develop a strong default 'no' mentality. We think about the pro forma and the future as if this business has certain truths about its recent past that need to be discovered, understood and projected forward to make a decision about whether to be on board when the future happens to this business.

As entrepreneurs, on the other hand, we are performance makers. We look for and chase opportunities until the chase is proven unworthy or lost. We interpret results as feedback on our predecessor's motivations, actions, and decisions, which may differ greatly from ours. We work to understand the dynamics that led to the observed recent past, and think carefully about how we'd project those dynamics onto a new future trajectory set under our stewardship. Once in the leadership seat, our experience constantly feeds forward on the next round of actions we can take to improve and grow the business. In making our assessments, we've developed a constructive default 'yes' mentality.

Taking each perspective in an evaluation often leads to us to opposite conclusions about whether to proceed or pass. Within the last 2 years, we've begun looking at deals first through the entrepreneur/performance maker lens. For example, I might look at financials and a set of deal facts and conclude, wow... this is a reliably profitable business in a solid market and despite no one paying attention, it's only contracting 2%/year, Yahtzee! We then take the investor perspective... declining sales? This thing is super messed up. Rotten deal. Next! Then we try to come up with a reconciled perspective before making a final decision.

Becoming self-aware of and more purposeful about the priors we bring to each evaluation has been incredibly helpful. Once aware I carry both of these perspectives, it's easy to see how my mood, recent events, and what content I've been consuming most recently can influence my default lens, By forcing myself through both lenses, our decision process has become about investigating and negotiating the discrepancies between two conflicting perspectives. Only then can we build a well-grounded pro forma perspective that inserts ourselves as owner-operator, and honestly assesses if the decision ought to be (a) we're doing it now, (b) we're doing it never, or (c) we'll look again later.

Getting better at the entrepreneurial evaluation lens is where I've come the farthest. In my opinion that lens holds the most promise for searchers to compete successfully against professional investors. That's the one we try to do first. It's the most fun and educational, and if we simply can't get ourselves to yes on that, then we get to move on and avoid those dead ends in the future. If we did the performance taker evaluation first and use that to DQ before considering the yes case, we'd be selling our entrepreneur selves short, and constraining our addressable market to deals where only performance takers play. Those are not the people we want to put ourselves into competition with. They have more money, more experience, and a better track record than us. There's lots of them and only one of us. We've been able to do deals the No people can't or won't do because of the creativity and freedom created in our Yes case. Most importantly, we've been able to get ourselves into the virtuous cycle of actual performance making, where, unless you are Warren Buffet, the real value is created.

Hope this is helpful to anyone out there looking at deals. Happy searching!


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