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Due Diligence - Get On The Ground

Make the extra effort to get on the ground yourself and talk to people. The types of subtleties, emotion, body language, you can only pick up on in person. 99% of investors won’t make the effort to do this, so this is a real difference maker.

In the weeks following September 11th there was immense political pressure “to do something”. Pete Blaber was part of a special forces unit that was the first to touch down in the Persian Gulf to prepare for combat in Afghanistan. The order from the top was simple. Find something to attack – a terrorist training camp, some tanks, Usama bin Laden’s house, anything. The US Government had to make a statement.  

The best they could find was an old airfield in the middle of the desert and an abandoned house of one of the Taliban leaders. To reach these empty targets they would have to go through/around the city of Kandahar, which was known as the “ring of fire”. Satellite imagery showed enemy tanks were positioned around the city. It was also said the city was protected by rockets, missile launchers, anti-aircraft guns and thousands of capable Taliban soldiers. In addition, it was assumed the Afghan people were helping and supporting Al Qaeda and Taliban forces. Winter was approaching in Afghanistan which added to the rush to do something before it got too cold for ground movement. 

To make matters worse – the newly constructed mobile US military base was stationed on a small desert island and the only way to reach these empty targets were large CH-47 helicopters. They would have to make an 8-hour journey (1,000 miles) to the targets. This would be the longest wartime helicopter mission in history. The problem with the CH-47 is they are loud, and the enemy can literally hear them coming from miles away. The mission sounded like insanity – especially given the targets were duds. 

Pete and his team were dumbfounded. “For my comrades and me in the Unit, we were beginning to understand a stark new reality concerning our role in the global war against terrorists. Instead of rolling up our sleeves, immersing ourselves in the mission, and developing out of the box concepts and ideas for our country’s most sensitive missions, we now found ourselves on the receiving end of the massive military decision-making hierarchy.” 

Pete was frustrated. Other units were frustrated. They decided to come together to formulate a plan and do real work into the situation. The goal was to convince headquarters to drop the empty target plan. Instead of relying simply on satellite imagery, they needed on the ground input from Afghans and input by someone who understood Al Qaeda. Pete knew he wasn’t going to find the answers sitting inside a tent. “I had to take action to make action.”

Pete and the other Units started reading everything they could find about Afghanistan and the current situation. Pete reached out to some old friends that used to be high ranking officials in the Government asking if they knew of anyone stateside with local knowledge of the situation in Afghanistan. 

One of Pete’s contacts replied that he had some Afghan American friends he met with weekly at an Afghan restaurant just outside of Washington D.C. One of these friends was an ex-Afghan general who had fought against the Soviets in the mid 1980’s. Pete spoke to the old general over satellite phone the next day. 

This is what he learned: 

  1. There were tanks surrounding the city but “very few, if any, were operational.” In fact, most of the advanced technologies they thought the enemy had they didn’t. Al Qaeda wasn’t preparing defenses around the city. 
  2. The Afghan Locals hated Al Qaeda. 
  3. The Harsh Afghan winter averages mid 30’s °F, not exactly harsh. 

Pete explained, “Slowly but surely, a different picture was beginning to form for me and my comrades as we accrued more and more on-the-ground information. We began to challenge everything we thought we knew about the reality of the situation on the ground in Afghanistan.” 

“Back in D.C both the secretary of defense and the president were expressing well-earned frustration with the dearth of intelligence being fed to them from a trillion dollars’ worth of space-age intelligence technology. Ironically just a few miles away from the White House, across the Potomac River in Virginia, there were men sitting around a table in an Afghan restaurant who had better, and more accurate, intelligence.”

When information was presented to senior officers it was immediately dismissed. No one wanted to listen. The empty targets would be destroyed. 

When I read the story above, I couldn’t help but see parallels with investing. We often feel the urge “to do something”. We love to come to quick conclusions by analyzing what is on the surface (satellite imagery). But reality is much more nuanced. Sometimes what is easily seen is meant to distract us. 100% of investors can see what is on the surface. 5% are willing to dig below the surface to find the truth. 

Here are four things we can learn from Pete Blaber when doing reconnaissance into a business: 

Read Everything – When you are analyzing a company, competition, and industry read everything you can get your hands on. But you must realize this is what everyone else is doing. Don’t fool yourself into thinking you know what is happening on the ground by reading secondary sources instead of talking to primary sources. 

Utilize your Network – We like to fool ourselves, “I don’t want to talk to other investors about my ideas because I don’t want them to know what I’m looking at.” We would rather be first and naive rather than second and educated. It makes no sense. Don’t be afraid to ask your network, “Does anyone know anything about company XYZ?”. We underestimate the power of our networks.

Talk to people on the ground, but not just one – Talking to on-the-ground experts are incredibly important. The rise of expert networks (Tegus, Stream by Mosaic, etc) is making this easier. When you are locating an expert or paying a firm to do this for you it’s important you are finding the right expert. Your goal is to find experts with direct knowledge of an industry in addition to years/decades of tacit knowledge (knowledge that can only be expressed through long, in person meetings). Not all “experts” are created equal. Some experts come into the conversation with certain motivations. For example, Ex-employees/previous management might be negatively biased towards a company or product. In addition, if an expert is being paid by an expert network it’s in their best interest “to talk” to you and seem important. You need to be able to spot these biases.  When you talk to experts it’s important to talk to 5 or more.  

Get on the ground – Make the extra effort to get on the ground yourself and talk to people. The types of subtleties, emotion, body language, you can only pick up on in person. 99% of investors won’t make the effort to do this, so this is a real difference maker. I’m reminded of this great quote by pastor Craig Groeschel, “It’s often the small things no one sees that result in the big things everyone wants.”

Pete Blaber concludes, “Until we get on the ground input, we should expect that most of what we think we know will likely turn out to be incorrect or incomplete. This mind-set allows us to maintain our most prized freedom, the freedom of choice to change our minds and liberate our thinking from the commonsense blocking emotions of pride and hubris.”

Quotes taken from The Mission, the Men, and Me: Lessons from a Former Delta Force Commander

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