In manager selection, most investors will look beyond your fund’s track record and give weight to organizational factors that provide them with confidence that the business is well-managed and likely to succeed long-term.
If your strategy and marketing efforts have qualified your fund for an investor’s short list of candidates, then business management factors can either close the deal or disqualify you from further consideration. And with so many funds competing for attention, investors are always looking for any reason to bump funds off their “watch” list.
Like all types of business, your fund’s organizational strength is based on tangible and intangible factors related to the quality of its leadership, the consistency of its operational disciplines and the depth of its customer focus. On a more granular basis, here’s what those 3 factors entail:
Quality of Leadership: Investors Bet on the Jockey
- Articulating the Vision…This task is far more complex than sticking a mission statement in a pitch deck or website; it’s a belief system that drives the business. According to Fast Company magazine co-founder, William C. Taylor, leaders at high performing companies are “able to explain, in language that is unique to their field, and compelling to their colleagues and customers, why what they do matters and how they expect to win.” Taylor claims leaders who think differently about their business invariably talkabout it differently as well. Your fund must “talk the walk” to inspire and convince internal and external audiences.
- Building the Culture…A company’s culture is shaped by how its leadership “walks the talk,” and has a great impact on organizational health and longevity. Some businesses succeed financially in spite of a poisonous or opaque internal culture, but never reach their full potential because the people who work there are not truly engaged. Beyond depicting the traditional org chart, your fund needs to explain to investors how it manages human capital, and must demonstrate how it fosters transparency, communication and teamwork.
- Thought Leadership…This overused marketing term is typically associated with blog posts and publicity. But bona fide thought leadership is less about self-promotion, and more about acting as a serious student of one’s own professional discipline; whether that be asset management or auto mechanics. Your fund must demonstrate that it’s much more than a one-trick pony with a smart investment formula. Investors want to engage with people who are constantly exploring new ideas and better approaches in their pursuit of excellence.
Operational Discipline: Investors are Business Detail Junkies
- Working ON the Business…Most business owners are so focused on working AT the businesses (i.e., managing the fund), that they fail to create or properly manage all the internal disciplines necessary for the enterprise to succeed. More importantly, according to Michael Gerber – author of “The E-Myth: Why Small Businesses Don’t Work and What To Do About It” – your fund’s intrinsic value and ability to survive is based on how well it has defined, documented and perfected all of its internal systems and methods. There’s a reason why McDonald’s french fries taste the same in all of its worldwide locations: they constantly work ON the business of sourcing, preparing, cooking and serving french fries.
- The Outsourcing Challenge…For many businesses, the outsourcing of middle and back office operational functions can make great economic sense. But investors need to know that your fund isn’t simply a “virtual” business composed of a contractual network of various 3rd party providers. If your fund outsources any critical business functions, it needs to assure investors that you (not the outside providers) are 100% accountable for those functions. More importantly, your fund must demonstrate rigorous internal disciplines for oversight that ensure the accuracy, timeliness and quality of all outsourced functions.
Depth of Customer Focus: Investors Need to Like You
- Accessibility/Affability/Ability…These “Three As” of consultation, taught for decades in medical schools, have application across all service businesses, including fund management. Every type of customer – whether they’re shopping for legal representation, tax advice or portfolio alpha – is influenced as much by your likeability as they are by your college degree, your fancy office or your IQ. Irrespective of its track record, if your fund (as individuals and as an organization) doesn’t come across as friendly, easy to work with and professional, investors are unlikely to explore a relationship. Ego and attitude can be brand liabilities for any business, and fund managers who display those personality traits risk losing out to competitors who may be less talented, but far more likeable and marketable in the eyes of investors.
- Managing Customer Experience…Many funds don’t even think of investors as customers, but rather as potential beneficiaries of their market insight, trading genius or financial returns. This stilted point of view is often reflected in how those funds communicate and behave, both with prospective and current investors. But the most successful funds understand that investors are people, regardless of the size of the institutions they represent, and that nurturing personal relationships matters. Your fund would be well-served by following the advice of Bruce Temkin, founder of The Temkin Group, and a recognized authority in customer experience, who suggests that all companies:
- Focus on your customers’ needs, even when internal priorities push them to be ignored.
- Orient your thinking on customers’ journeys, even when the organization cares about individual interactions.
- Design for customers’ emotions, even when success and effort are often the better understood parts of an experience.
- Develop innovative ways to treat customers, even when the status quo seems to be good enough.
Selling performance alone is a dead end for funds, and is the #1 reason why fund marketing strategies fail.
Increasingly, investors are more interested in how funds create and sustain a successful business enterprise. To build a company that provides investors with the confidence to put capital at risk, fund managers must be held to the same high standards of leadership, operational discipline and customer focus that private and public companies face in seeking to attract equity investors.