SUMMIT
Wal-Mart, Nike, Amazon.com, Starbucks, Ford, Oracle, Microsoft, Facebook, Celgene, Amgen, and others are considered great companies. It is human nature to look at a long-term chart of these companies and think, “well that was easy”, but we all know that isn’t true. Whether it’s business, sports, art, performance, greatness always looks easy because the populace only sees the final result, not the hard work behind the scenes. All great companies faced what looked like insurmountable challenges when they started.
“It’s quite interesting to think about Wal-Mart starting from a single store in Bentonville, Arkansas against Sears, Roebuck with its name, reputation and all of its billions. How does a guy in Bentonville, Arkansas with no money blow right by Sears, Roebuck? And he does it in his own lifetime—in fact, during his own late lifetime because he was already pretty old (44) by the time he started out with one little store….”Charlie MungerHow/Why did Wal-Mart succeed?
The answer is Sam Walton. If you had the ability to invest in Wal-Mart in the 1960’s when it had a few stores, you weren’t betting on Wal-Mart, you were betting on Sam Walton. Even after Wal-Mart had grown to a hundred stores, $200+ million revenues [$1.2 billion – 2015 inflation adjusted], Sam Walton was still flying around in his little airplane finding and negotiating store locations.
For the most part, microcap companies are small, young companies, with short operating histories. Successful microcap investing is similar to successful venture capital investing in that both are bets on founders (on people). Shane Pharrish, founder of Farnam Street, recently interviewed Chris Dixon. Chris Dixon is a partner at one of the most famous venture capital firms in the world, Andreessen Horowitz.
“I would say my biggest learning is it’s probably more people than I ever thought…I probably thought originally it was 70% people and now I think it’s 98% people” Chris DixonMany investors roll their eyes at the qualitative aspects of investing, but when investing in small microcaps, people (Founders) are the difference makers. In the past there were times where I invested in microcap companies in spite of management. In most cases the company/stock would do well in the short-term, but in the long-term it was like gravity, the business followed the management back down.
The smaller the company the more important the CEO-founder becomes. Often times CEO-founders of microcap companies wear many hats so their influence is multiplied. Not only are they the CEO but also the COO, VP Sales, Garbage Man, Company Contact person, etc. Bad decisions can destroy a small company and great decisions have a compounding effect on a small company. If you don’t believe that founders and management are important to small companies like microcaps, just wait a little longer. You will.
My goal is to own the smallest, most illiquid, least institutionally owned, best businesses I can find that are run by intelligent fanatics. All great companies started as small companies, and intelligent fanatics founded most great companies. Charlie Munger first coined the term “Intelligent Fanatic” but Sanjay Bakshi is the one making it famous today. In Sanjay’s lecture, Seven Intelligent Fanatics From India, he identifies three essential ingredients: Integrity, Energy, and Intelligence. In a recent presentation, I spoke about investing in companies who are run by Intelligent Fanatic Iconoclasts. I’d like to first define “Intelligent Fanatic”:
Intelligent Fanatic = (Long Term Vision + Focus + Energy + Integrity + Intelligence) x Execution
The combination of all these traits multiplied by execution is what makes an intelligent fanatic. Many investors mistake an executive with charisma for being an intelligent fanatic. This isn’t the case, and in fact, many intelligent fanatics are not charismatic. The microcap space in particular is filled with snake oil salesman and executives that talk too much and do too little. Don’t mistake a story telling, charismatic CEO as an intelligent fanatic. Intelligent fanatics let their execution do the talking. Sean Iddings and I are teaming up on the Intelligent Fanatics Project which will highlight several intelligent fanatics and how they built sustainable businesses.
How do we find intelligent fanatics early? How can we find the next Sam Walton, Elon Musk, or Howard Schultz? It’s great to read about them after they’ve made other investors billions, but we want to find them early in their careers. How can we find Reed Hastings 13 years ago when he was leading an $80 million market cap microcap called Netflix (NFLX)?
“A man who wants to lead the orchestra must turn his back on the crowd.”Max LucadoIf you want to find intelligent fanatics early, look for intelligent iconoclasm.
Iconoclast: a person who attacks cherished beliefs or institutions.
I’ve found the best resource describing these behaviors in William Thorndike’s great book, The Outsiders: Eight Unconventional CEO’s and Their Radically Rational Blueprint for Success. There is a wealth of information and wisdom in the passage below:
This group of happily married, middle-aged men (and one woman) led seemingly unexciting, balanced, quietly philanthropic lives, yet in their business lives they were neither conventional nor complacent. They were positive deviants, and they were deeply iconoclastic. The word iconoclast is derived from Greek and means “smasher of icons.” The word has evolved to have the more general meaning of someone who is determinedly different, proudly eccentric. The original iconoclasts came from outside the societies (and temples) where icons resided; they were challengers of societal norms and conventions, and they were much feared in ancient Greece….. Like Singleton, these Outsider CEOs consistently made very different decisions than their peers did. They were not, however, blindly contrarian. Theirs was an intelligent iconoclasm informed by careful analysis and often expressed in unusual financial metrics that were distinctly different from industry or Wall Street conventions.
They seemed to operate in a parallel universe, one defined by devotion to a shared set of principles, a worldview, which gave them citizenship in a tiny intellectual village. Call it Singletonville, a very select group of men and women who understood, among other things, that:
- Capital allocation is a CEO’s most important job.
- What counts in the long run is the increase in per share value, not overall growth or size.
- Cash flow, not reported earnings, is what determines longterm value.
- Decentralized organizations release entrepreneurial energy and keep both costs and “rancor” down.
- Independent thinking is essential to long-term success, and interactions with outside advisers (Wall Street, the press, etc.) can be distracting and time-consuming.
- Sometimes the best investment opportunity is your own stock.
- With acquisitions, patience is a virtue . . . as is occasional boldness.
Interestingly, their iconoclasm was reinforced in many cases by geography. For the most part, their operations were located in cities like Denver, Omaha, Los Angeles, Alexandria, Washington, and St. Louis, removed from the financial epicenter of the Boston/New York corridor. This distance helped insulate them from the din of Wall Street conventional wisdom. (The two CEOs who had offices in the Northeast shared this predilection for nondescript locations—Dick Smith’s office was located in the rear of a suburban shopping mall; Tom Murphy’s was in a former midtown Manhattan residence sixty blocks from Wall Street.) The residents of Singletonville, our outsider CEOs, also shared an interesting set of personal characteristics: They were generally frugal (often legendarily so) and humble, analytical, and understated. They were devoted to their families, often leaving the office early to attend school events. They did not typically relish the outward-facing part of the CEO role. They did not give chamber of commerce speeches, and they did not attend Davos. They rarely appeared on the covers of business publications and did not write books of management advice. They were not cheerleaders or marketers or backslappers, and they did not exude charisma.
Most intelligent fanatics are owner-operators that own significant pieces of their businesses. They have their net worth on the line so every decision is made for long-term business reasons. They treat their shares like gold. They normally take below average salaries because they expect to get rich off the stock, not the salary. Elon Musk made $165 million when Paypal was sold to Ebay in 2002. Over the next six years he put his entire net worth into Tesla, SpaceX, and SolarCity, owning substantial pieces of these businesses. He also paid himself California State minimum wage as he was going “all in”. This is an extreme example, but this is what shareholders want to see. I can’t overstate the importance of management-board ownership, compensation, and incentives. Many microcap management teams own meaningful positions in their companies but their compensation and incentives reinforce the wrong things. I also find that most microcap CEO’s view their board of directors as a waste of time. Intelligent fanatics don’t waste time. They create powerful boards that are filled with individuals that create positive feedback loops for the business. They are what Warren Buffett calls an “owners board” where each board member owns a meaningful amount of stock that they paid for with their own money.
“At Berkshire, almost everyone on the board has a lot of Berkshire stock. They’re in the same position as shareholders. They don’t have D&O [Directors and Officers] insurance and they bought the stock in the open market. It’s a real owners board.”Warren BuffettIntelligent fanatic iconoclasts distance themselves physically and mentally from Wall Street. Most hold a disdain for publicity and talking up their stock. They mostly view convincing the prospective investor of the investing merits of their company a waste of time and resources. They are communicative to shareholders but never to the detriment of the business. Be cautious of any CEO that talks about his/her stock price before mentioning the business. They are focused on the wrong thing. Ed Borgato said it best:
Intelligent fanatic iconoclasts Focus On The Long-Term. In the interview below, William Thorndike (@28:20), talks about how Outsider CEO’s optimize long-term value per share (3-5 years) and when the Owner-Operator owns a substantial piece of the company, like Jeff Bezos, they can look out even further because they can afford to not give time-attention to short term influencers. Due to this long-term focus you rarely hear intelligent fanatics talk in short time frames, and they don’t give guidance.
“If we have a good quarter it’s because of work we did 3, 4, 5 years ago. It’s not because we did a good job this quarter.”Jeff BezosWilliam Thorndike (@33:35) also talks about how to find the next Outsider CEO and that the markers are mostly qualitative. He says to look at Vocabulary, how the CEO talks and writes about their business. You want a CEO that discusses “Per Share” metrics, focus on free cash flow not net income, and they get extra credit for using “internal rates of return”. In addition, I would add that intelligent fanatics act and communicate with integrity. It’s not only the business decisions they make during good and bad times that define them but also when they make the right decisions when they don’t have to. Their decision to continue to take a below average salary even though they deserve an above average one. It’s their decision to talk openly about the headwinds affecting the business as well as the tailwinds.
“Show me a guy who’s afraid to look bad, and I’ll show you a guy you can beat every time.”Lou BrockMany intelligent fanatic founder-CEO’s didn’t have previous industry experience. They weren’t taught what was impossible. Their minds weren’t fenced in by conventional norms. They were iconoclasts that intelligently attacked convention. They rose to dominance by trying new things, experimenting, taking calculated risks, and not giving in to the fear of failure. Intelligent fanatics aren’t afraid to shoot a lot of calculated bullets, and when a bullet hits a target they recalibrate and shoot a cannon ball. They don’t dwell on failures.
David Glass started with Wal-Mart in 1976, would be CFO, COO, and then CEO from 1988 -2000.
As Thorndike points out, many intelligent fanatic iconoclasts run businesses with decentralized organizations. Strong leadership and corporate culture are imperative to to the success of decentralized organizations. Leadership and culture is driven from the top down in a way that influences employee devotion and buy-in.
Wal-Mart Store #6, Manager-Employee Buy In
Intelligent fanatic iconoclasts know they can’t be everywhere at once. They know what they don’t know, and they fill those gaps with talented people. This is one big issue I see with many microcap companies. The sheer will power of the founder-CEO can make up for talent gaps, but vigor and energy can only take them so far. Many microcap founders don’t have the awareness and humility to realize when their organizations have outgrown them. Intelligent fanatics hire talented people from the very beginning and focus on creating leaders so they can promote from within.
“Leaders don’t create more followers, they create more leaders.”Tom PetersIt is human nature to look for companies attacking huge markets, but most great companies started by dominating a smaller niche. Even Sam Walton of Wal-Mart started by attacking the local merchant in rural towns.
“Walton, being as shrewd as he was, basically broke other small town merchants in the early days. With his more efficient system, he might not have been able to tackle some titan head-on at the time. But with his better system, he could destroy those small town merchants. And he went around doing it time after time after time. Then, as he got bigger, he started destroying the big boys.”Charlie MungerMost investors look for “big stories” with “big addressable markets”, but in many ways to find the next Wal-Mart you need to think smaller. Intelligent Fanatics dominate small markets first. After they become a big fish in a small pond they look for larger ponds to dominate. The great thing about microcap investing is you can make a lot of money on small companies that can become larger small companies. I’m somewhat oversimplifying but if you can find an undiscovered $5 million revenue profitable business that can grow to $50 million in a reasonable time period without diluting you, this alone will result in 10-20-30+ baggers.
Intelligent fanatics are great capital allocators. They know when/where to reinvest into the business, when to use their stock as currency, and when to buy their stock back. The perfect example of this is Henry Singleton of Teledyne. In the 1960’s, Henry Singleton made 130 accretive acquisitions when his stock was expensive (>25 PE), and in the 1970s and 1980’s bought 90% of Teledyne’s stock back when it was cheap (<8 PE). AutoZone is another modern day example which I tweeted about [HERE].
*Source: The Outsiders
In conclusion, if you want to find intelligent fanatic CEOs early, a good starting point is finding a company whose founder-CEO owns a significant piece of a good business. It might not be a great business just yet. Second, look for intelligent iconoclasm. In many regards, intelligent fanatics build companies that positively reinforce their iconoclastic behavior. Their business performance and ownership positions allow them security from short-term influences. Intelligent fanatics aren’t distracted by raising money and catering to Wall Street because they create compounding machines. A majority of the best performing microcap stocks ever were profitable growth companies that could self-fund their growth which allowed the intelligent fanatic to focus on execution and capital allocation. This introversion and obsession with the business often creates regrettable personalities. The businesses they create allow them to give Wall Street, the analyst community, and short-term investors the cold shoulder. Why? Because they can. They don’t need them, and it’s exactly what makes intelligent fanatic iconoclast CEOs and their businesses so attractive for long-term investment.
If you liked this article, read this one: All Great Companies Started As Small Companies
MicroCapClub is an exclusive forum for experienced microcap investors focused on microcap companies (sub $300m market cap) trading on United States and Canadian markets. MicroCapClub was created to be a platform for experienced microcap investors to share and discuss stock ideas. MicroCapClub’s mission is to foster the highest quality microcap investor Community, produce Educational content for investors, and promote better Leadership in the microcap arena. If you are a passionate microcap investor, Join Us.
Comments 21
In investing, everything is easy in theory, difficult in execution.
In the 1980s I can remember Teledyne’s (Henry Singleton’s company) trading at a PE of about 3.3 and the company had a return on equity of over 25%. I actually think it might have been over 30%, consistently.
I like the criteria you use in your essay Ian:
– three essential ingredients: Integrity, Energy, and Intelligence.
– They normally take below average salaries because they expect to get rich off the stock, not the salary.
– Intelligent Fanatics dominate small markets first.
– look for intelligent iconoclasm
A great manager running a mediocre business is likely to spin his or her wheels a lot. The great majority of businesses offer nothing truly unique to their customers in the way of price or value, quality or unique product.
So dominating small markets first makes a lot of sense.
But it is still not easy, as an investor.
I found this on the Singleton Wikipedia page:
“In the “bear” market of the early 1970s, Teledyne stock fell from about $40 to less than $8;” Sticking with Singleton and Teledyne wasn’t easy, I didn’t do it, but it was the right thing for an investor to do.
But late in Singleton’s career, Teledyne began to fall apart and never recovered. It was eventually broken apart and sold off.
A primary question making this analysis difficult for the investor: how much of a premium to pay for what appears to be great management. If you have a graduating class at Harvard or MIT, how much more should you pay to participate in the following 30 year career of the person with the highest marks versus the person with the lowest? A hundred percent more? A thousand percent more? I imagine that on average, with many losers, but on average I’d think that a thousand percent more would be probably worth it. To some extent it is like how much more a professional football team should pay the college running back with the fastest 40 yard dash time versus a running back with the slowest time. I guess pass completion percentages are also important, but the issue for an investor is how much of a premium is worth paying for the best executives. Not an easy question.
Also many executives achieve a degree of success and become complacent. For an excellent book on this, see Wareham’s Way, by a headhunter, John Wareham, whose consulting practice helped many large corporations hire new CEOs. Wareham noticed over the decades that many CEOs, after achieving a degree of success would become self-destructive — giving up when they reached a degree of success, according to Wareham, that exceeded that of their father’s. The human psyche is a complicated place (my girlfriend says that as she motions with her thumb over her shoulder in my general direction).
The question of integrity is an interesting one. When GE under Welsh decided to shut down many of its lower technology businesses, the communities in the former GE factory towns in Massachusetts experienced skyrocketing suicide, divorce, drug use, teen pregnancy — and drug gangs from New York City moved in. Welsh did everything he could to avoid clean up costs related to the PCBs that GE put in the Hudson River. And Sloan at General Motors, one of the most successful companies of the 19th century under his management, fought tenaciously government attempts to eliminate glass that would shatter into long shards and kill people in car accidents (this was before seat belts) arguing that the public good was not his responsibility. Carnegie, Steve Jobs, when you really get into their careers, there is a trail of bodies littering the way. You won’t find many senior executives from Apple’s or Pixar’s Steve Jobs period who think that one of his greatest personal characteristics was integrity.
Re “Many investors roll their eyes at the qualitative aspects of investing,” I’m a quantitative investor, but not because I don’t respect the qualitative aspects of investing. I just know from long experience that (1) I’m not good at it, and (2) I know that there are many different ways to skin this particular cat that can be successful. There’s no one way. And I’m like a blind man when it comes to qualitative analysis even though at one time institutions paid me hundreds of thousands of dollars a year for my qualitative analysis — I eventually realized that I wasn’t good at it — I try to compensate with better hearing and touch. For instance, I’m now compiling a spreadsheet of CEO compensation as a percent of gross profit of each of the companies I research as an indicator of where management’s interest’s lie, in the stock or in the compensation. It’s a balance for sure, but I will say that so far I notice substantially lower executive compensation where directors own a lot of the stock.
Ian you have the skills and the background and the inclination to develop the art of identifying CEOs with great potential. I’ve tried, I’m not, but I’ve done okay, particularly lately, using other methods to try to compensate for my lack of skill in this area. But it isn’t a lack of respect for your approach.
Author
Rod, thank you for your insights on Singleton. It’s hard to imagine a stock with a PE of 3 and ROE >25%. Unless it was a Chinese fraud ☺
Trying to find these intelligent fanatics isn’t easy. There are no hardened rules or formulas. It’s all very abstract, but I think you can start to see a model or framework.
I appreciate you taking the time to read and comment as I know you use a mostly quantitative approach. It’s also the great thing with investing. It’s important for investors to find and develop a strategy that fits their personality, one that can take advantage of market inefficiency and/or human emotion. There are many roads to success.
I have begun my review of you book on http://www.csinvesting.org
Part 2 to follow next week.
Clear writing and insightful analysis… as usual. Thank you!
Author
Thanks Doug, appreciated
I gotta say, I love these posts. I’ve read them all, and they are all great! Im always excited when a new one pops up. Keep up the amazing work!
Author
Thanks John, appreciated.
Dear Ian,
We have an interesting situation at Thomas Cook India (Prof Bakshi has brought up Quess CEO as an Intelligent Fanatic) where Fairfax Prem Watsa is paying a significant premium to retain him or should i say lock him down or get an alignment of interests. It is very interesting situation unfolding in front of our eyes? Is he over paying or get him cheap? – another Singleton? Jury is out ?
Rgds,
Samir
Author
Samir:
On the topic of CEO/Founder compensation, you will have outliers. Those that get paid handsomely, even those that get paid well and own little stock, that still do a phenomenal job. These outliers, especially in the microcap world, are few and far between. Microcaps are for the most part, small emerging companies with short operating histories. With larger more established companies you can afford to pay higher salaries to attract talent. I’ve always enjoyed Peter Thiel’s remarks (see below) on how he looks at compensation in venture-backed start up companies. My view is very similar in microcaps.
CASH IS NOT KING
For people to be fully committed, they should be properly compensated. Whenever an entrepreneur asks me to invest in his company, I ask him how much he intends to pay himself. A company does better the less it pays the CEO – that’s one of the single clearest patterns I’ve notices from investing in hundreds of startups. In no case should a CEO of an early stage, venture backed startup receive more than $150,000 per year in salary. It doesn’t matter if he got used to making much more than that at Google or if he has a large mortgage and hefty private school tuition bills. If a CEO collects $300,000 per year, he risks becoming more like a politician than a founder. High pay incentivizes him to defend the status quo along with his salary, not to work with everyone else to surface problems and fix them aggressively. A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole.
Low CEO pay also sets the standard for everyone else. Aaron Levie, the CEO of Box, was always careful to pay himself less than everyone else in the company – four years after he started Box, he was still living two blocks away from HQ in a one-bedroom apartment with no furniture except a mattress. Every employee noticed his obvious commitment to the company’s mission and emulated it. If a CEO doesn’t set an example of taking the lowest salary in the company, he can do the same thing by drawing the highest salary. So long as that figure is still modest, it sets an effective ceiling on cash compensation.
Cash is attractive. It offers pure optionality: once you get your paycheck, you can do anything you want with it. However, high cash compensation teaches workers to claim value from the company as it already exists instead of investing their time to create new value in the future. A cash bonus is slightly better than a cash salary – at least it’s contingent on a job well done. But even so-called incentive pay encourages short-term thinking and value grabbing. Any kind of cash is more about the present than the future.
Great blog, thanks for enlightening so many aspiring value investors like me. Have been following your blog since the last two years when Proff. Sanjay Bakshi had suggested it to us in his class and i have gained so much from your awesome blog posts. Proff. Bakshi wrote a blog in 2013 on the corporate governance in Indian family owned businesses and had identified a framework for classifying such business as per the characteristics of the CEO. You can find it at https://fundooprofessor.wordpress.com/2013/10/12/oo1-to-oo3/
Thanks!
Author
Thank you Prateek for recommending that blog post.
Very thought provoking post Ian and thank you for sharing your thoughts on an approach to find out an intelligent fanatic early. I intend to burn that equation into my head to see how it validates.
There is no doubt on the difficulty in finding an intelligent fanatic. However as in most cases, neccessary conditions are less helpful than sufficient conditions. For instance it maybe necessary for an IF to be an iconoclast of sorts, but that is not sufficient. And unless we have some idea of the base rate (i.e. Share of IFs among iconoclasts) we will not know how much weight to assign. However sufficient conditions are more helpful because if a sufficient condition exists then we can be far more certain of an IF or the predicted case.
Warm regards,
This very insightful post as well as motivational one.
This post will help me to find the CEOs early as well as it will inspire me to be one.
Printing this out, This piece is to be read once a month.
Superr!
Author
Thank you Mahir, appreciated
Hi Ian, this article covers really great insite. Can you please add case study of any 1, 2, 3 companies when they were below $100m and now big to show what could have been that triggere point to find them early. I believe it makes great sence to mix the great theory with case study.
Thanks,
Nishi
Author
Nishi, I agree. We will be working on this topic in 2016. Part of an intelligent fanatic project I’m collaborating on with Sean Iddings. https://twitter.com/uncapwisdom
“Most investors look for “big stories” with “big addressable markets”, but in many ways to find the next Wal-Mart you need to think smaller. Intelligent Fanatics dominate small markets first. After they become a big fish in a small pond they look for larger ponds to dominate.” This is interesting.. But what is size of the pond remain small… Do you mean to say these promoters will then add newer businesses by way of diversification….. Generally when I start looking at any company the first thing I do is look at market size… if market size is very small .. rarely I do further investigation.. Can you elaborate more on this with come examples.. Regarding WallMart.. Ultimate size of opportunity was big.. but initially they decided to focus only on small cities…
Author
Thank you for the comment. As you know I really believe in Peter Thiel’s approach of investing in companies dominating a small market that is expanding rapidly. I think one must discern between Total Available Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM).
TAM: Is the total market demand of for the product and service and shows the potential scale of the market.
SAM: Is the portion/segment of the TAM targeted by your products or services within your geographic reach.
SOM: Is the % of SAM that you can realistically capture.
For example, a company I’m currently investing in dominates a small niche market. The TAM is likely $100 million USD, the SAM is probably $25 million, SOM is $18 million, and their actual market share of the SOM is 70%. They really dominate their niche in their geographical footprint. Over the next five years, given consumer trends and tailwinds I expect the TAM to increase to $500 million (5x), due to this company’s dominance and expansion, their SAM is likely to increase to $150 million (7x), and they can realistically likely capture 50%. Their dominance in the market and moat gives them a big competitive advantage on sustaining their dominance in this market for a long time. Another multiplier on the above is analyzing how other small markets overlap. Often times when a company dominates one small market there are other complimentary markets they can address/attack quite easily given their dominant brand, product, service in another. The TAM can be multiplied and flow down to SAM, etc.
The Wal-Mart example which you pointed out is a bit different. The TAM was huge and somewhat proven because of intelligent fanatics like Sol Price of Fed Mart proving out the “discounting model”. Sam Walton proved it out by attacking small towns (small SAM no pun intended). As he beat up smaller players his scale and leverage allowed him to beat up larger players. Although the two examples here are different they are somewhat similar.
My takeaways have been that many companies try to grow too quickly, trying to be everything to everyone, instead of focusing on a small SAM. They need to learn the hard lessons while they are small. Sam Walton owned a few independent stores for 10 years or so before starting Wal-Mart. He had a fairly good understanding of what he wanted to do by the time he scaled up with Wal-Mart.
Ian,
Have been a reader of your blog and Prof. Bakshi’s posts for the last several years. Very insightful and thanks for generous sharing of your knowledge.
On the topic of Intelligent Fanatics, I find the Jim Collin’s 10Xers Leadership attributes in his book ‘Great by Choice’ have lot of parallels and few distinctions. Likely you have read the book but let me share it to give the context nevertheless.
Jim talks about 3 core behaviors or traits of 10xers Leadership: Fanatic Discipline, Empirical Creativity, and Productive Paranoia.
Fanatic Discipline and Empirical Creativity are the convergence aspects(with IF) with Productive Paranoia looked to be a distinct and relevant one in the current times with disruption and other risks. The terms Fanatic Discipline and Empirical Creativity do not do justice based on the meaning it stands for in English as Jim’s contour of these attributes is all about relentless focus, extra-ordinary will and energy, and mental independence which I see as parallels in Intelligent Fanatics.
Productive Paranoia is all about bounding the risks constantly having a watch on how the business could be upended and maintaining adequate cushion anticipating downturns/missteps as a cover. Disruptions are a common place today. Makes lot of sense to micro-cap and smaller companies to be on guard as they could be more vulnerable due to size. Interested to know your experience/views on this specific trait, which I don’t see it get explicit mention , as important as being ambitious and energetic. Interested to know your experience/views on this trait in an Intelligent Fanatic.
Author
Thank you for your thoughts Muthukumar. I’ve read all of Jim Collins books and I agree. Productive paranoia is very important and deserves it’s own topic/subject for a blog, chapter, or book. Going down this rabbit trail a bit further… there are soooo many unprofitable microcaps, 20% of US/Canadian Microcaps have positive operating income. A CEO I communicate with regularly once told me that when he got the company to profitability it allowed him to stop worrying about raising money and keeping the lights on and finally gave him the luxury of thinking in longer time frames, capital allocation, and about “checkmate” in his niche market. For the same reasons Sanjay Bakshi talks about financial independence being important for an investor because it allows the investor to see the world the way it really is…same can be said for company’s management when they achieve a profitable self-funding business.
a really great insightful article and force me to read this boom The Outsiders .I heard the name of this book many times but don’t know what invaluable suggestion this book have .Thank you very much.