To be better, one must first be different. Thus, good strategy focuses on understanding differences and creating differences. This also applies to investment firms — differences in structure often drives the strategy. Any entrepreneur or business owner considering raising capital needs to understand the structure of the investment firm and how that will affect their strategy.
This hit home recently reading a book, The Outsiders, by William Thorndike. The chart below is in the book showing the differences between the structure and strategy of Berkshire Hathaway and traditional private equity. I have added a third column to the chart to demonstrate the structure and strategy of my investment firm, Greybull Stewardship, in comparison.
|
|
Traditional Private Equity |
Berkshire Hathaway |
Greybull Stewardship |
| Holding Period |
3-5 years |
“Forever” |
No limitations |
| Management |
New CEO (often) |
Existing CEO |
Existing CEO |
| Leverage |
A lot |
None |
Moderate |
| Deal Source |
Auction |
Direct |
Mostly Direct |
| Postacquisition management interaction |
Frequent |
Infrequent |
Infrequent |
| Cost Cutting |
Usually |
Never |
Not usual |
| Due Diligence |
Extensive |
Cursory |
Extensive |
| Use of outside advisers |
Always |
Never |
Not usual |
| Compensation System |
Complex |
Simple |
Simple |
In observing Berkshire Hathaway over the years, I learned how Buffett had a tremendous advantage over traditional private equity because his firm was structured differently. As you can see, I have built the structure of Greybull Stewardship to have many of the same advantages to attract interest from the founders/owners/management of companies. I want Greybull Stewardship to be the preferred home for outstanding businesses.
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