Adam G Lawrence
SUMMARY
What suggestions would you make to someone thinking about bringing in investors?
Adam Lawrence highlights that attracting investors is a "people game" and suggests that both parties recognize that people purchase people. It is crucial for the individual soliciting funds to be likeable, self-assured, and able to communicate effectively.
What types of venture capitalist and private equity investor mindsets and philosophies are there?
Those who invest for a company's long-term growth and those who play a speculative game, making numerous bets in the hope that a few will pay out, are the two primary types of investor attitude in venture capital and private equity.
What are the most crucial aspects to take into account when assessing a potential investor or investee in a business relationship?
The ability to bring value in adversity, cultural fit, and track record of the potential investor or investee are critical considerations.
What motivates a person to invest in a specific real estate market segment?
The ability to hold and generate cash flow in the present as well as the potential for capital growth in the future are factors that draw someone to invest in a particular segment within the real estate market. Also important are diversification and a positive outlook for the property market's future.
TRANSCRIPT
Marcus Cauchi: Hello and welcome back once again to The Inquisitor Podcast with me, Marcus Cauchi. Today as my guest, I have Adam Lawrence. Adam is a property entrepreneur, multi-business owner operating in leisure facilities, service offices, conferencing, estate agents, national auctions, and also a board advisor to the fabulously named FUBAR internet radio. Adam, welcome.
Adam Lawrence: Thanks for having me Marcus.
60 seconds on your colorful background
Marcus Cauchi: Excellent. You you've got a fairly colorful background. Do you mind giving us 60 seconds on that?
Adam Lawrence: Let's just clear it, first of all, I've never been to jail, but yes, I, I, I've done quite a lot of things in my past from wealth management and experience in financial services through to, I headed up a betting syndicate about 15 years ago, where we bet extensively on football, horse racing and, a number of other sports, but it was largely a sort of edged position sort of thing.
Adam Lawrence: Although it sounds quite broad, and now I'm, I'm massively into property and have been for the last decade. There's actually quite a lot of similarities between all of those, fields. I'd say.
So what advice would you give to somebody who is considering bringing in investors?
Marcus Cauchi: I'm always very rude about most investors that they're little better than speculators and gamblers. I think you're just reinforcing the, the stereotype. Okay. So moving swiftly on before I offend you. So tell me this very many investors seem to think that having money gives you the right to tell people how to run their business and afford you some form of myth, mystical intelligence. My experience has been somewhat different to that. So what advice would you give to somebody who is considering bringing in investors and I'll show my cards here.
Marcus Cauchi: I'm writing an article at the moment called Interview with the Vampire. And it's how to interview your investors. So I'm doing some research for that.
Adam Lawrence: I think that's, I think it's, it's spot on to be honest .A lot of people I mean, I got involved in angel investment nearly sort of 10 years now, and I thought my goal really was to, to go into those rooms and learn a lot from the experience of the people that were in there and try and sort of harness the market a little bit, I suppose, and maybe ride a few people's coattail.
Adam Lawrence: I found pretty quickly. It didn't really work like that because people came in with pretty fixed mindsets. They have money, they'd normally had one business speciality and they then tried to sort of shoehorn that into another business that was completely and utterly different. So I think, you know, race from, from the racer's point of view, it's a, it's a people game.
Adam Lawrence: People buy people and, and everybody on both sides of the equation needs to understand that. So from the investor's point of view, it might stop you from making a mistake. If there's a particularly charismatic character, on the, at the front of the room or whatever, but also you've got to be likable. You've got to be someone who can impart confidence in people. You've gotta communicate well. And I know that's a big moment that a lot of people raising funds have in terms of the volume of communication that needs to be needs to be out there. But you, you have just got to communicate really, really well, otherwise gonna lose people at the first hurdle I think.
So what advice would you give to ensure that investors that just go silent and don't communicate does not happen?
Marcus Cauchi: One of the things that I've seen as a recurring theme is that investors, particularly ones that look like they're good money. By good money, they've got the cash, but they also bring something else to the party. Connections, experience, the right network. And then they just go silent and they don't communicate. And without putting too final point on it, it's fucking rude. So what advice would you give again to ensure that that does not happen.
Adam Lawrence: Well, I think, you know, rules of engagement at the start of any sort of communications relationship are a good thing. And maybe, I mean, I tend to use sort of humor to try and deflect certain situations. So I might say something like, something like, well, look now I've got your phone number. I'm gonna need to hear back from you or until you get a restraining order, realistically. You know, so give them a, give them, give them a, an understanding that you're gonna keep that, that coms going.
Adam Lawrence: And, you know, I think with, with some people, they are look incredibly busy. And you can push, you can expect to sort of push communication out to them that they don't necessarily need to, to answer to. If they start hiding from you on WhatsApp or text message or whatever platforms you, you're keeping them posted with.
Adam Lawrence: It's difficult. I mean, emails get lost in translations don't they? So picking up the phone is still a massive, massive skill because of that. People buy people ,were all apart from anything else, Marcus.
Marcus Cauchi: So it makes sense to have an agreed frequency or cadence of communication and rules of engagement if you get voicemail. I think also, to be clear that if they become unresponsive, then you as the investee, will close the file.
Adam Lawrence: Yeah. Yeah.
Marcus Cauchi: I think people forget that investors are looking for a good place to put their money because they want a return. But if you come as if they have the upper hand, then chances are that disparity in power and you abdicating and giving away your power as the potential investee means that you will get treated poorly.
The real problem is they're not generating enough sales in order to be able to be a viable, sustainable business
Marcus Cauchi: And I think too many organizations don't fix the real problem, which is they're not generating enough sales in order to be able to be a viable, sustainable business. And as a result of that, they need the cash, which then means that they end up giving away far more equity, far more control than they should.
Marcus Cauchi: And also they come across as needy, desperate and skid. No one really wants to invest in someone who's that desperate without taking a massive premium.
Adam Lawrence: I think that's really good point Marcus. And I think just to build on that a little bit, I think also people will sometimes, or quite often one of the mistakes that I've seen is people start raising money too late. And so they haven't been considering, they don't look at it as a pipeline sort of scenario. They aren't, they don't have relationships that are on the burner all the time. They aren't communicating with a mailing list of 50 or a hundred interested, warm prospects, just so that they know they might not need the money this year, but they know that when they do, they can then maybe just get in touch with five or 10 people who will be willing to, to put some money behind it.
Adam Lawrence: And, you know, see, see what happens. And instead they, they, they let the day to day take over and then suddenly, oh, do you know what next month we're bust or, or whatever, like you say, and it's, it's too little too late, or it puts them in a very, very weak negotiating position.
Marcus Cauchi: Interesting. And the investor's gonna wanna see the balance fee so you can't hide. Or if you can, you're gonna get found out very quickly.
Two types of investor
Marcus Cauchi: So this, this then raises the question about the investor mindset. When investors invest. I see,two types of investor principally. I see those who invest because they want the company to succeed and they play a long game they're patient capital. And then you have those that basically play roulette and they just place lots of bets in the hope that two or three workout because that's enough for their economic. And they're not really concerned whether any one of their, investments pays off. And in fact, they disappear as if they never existed from venture capital and private equities websites are remarkably quickly. So talk to me about the different, both of those different types of investment mindsets and philosophies.
Adam Lawrence: Well, start start with the, the speculator, if you like. I think that's the way that VC and, and, and PE as they've absolutely ballooned into the massive beast they are today. I think that's the only space they've really been able to expand into. And, you know, I'm, I'm survivorship bias is a huge part of analyzing bits really cause that's what they are. Bets that they've taken and whether they've been successful or not. People don't really analyze that sort of stuff very well.
What do you mean by survivorship?
Marcus Cauchi: And it's what do you mean by survivorship?
Adam Lawrence: So if you look at the Footsie today and then you see Footsie 100, let's say, and you look at those hundred companies and how they've done over the past 10 years, you are likely to get a rather false picture of how good a Footsie 100 company is. Because what you're not doing is you're not looking at, what's dropped out of the index which ones of those that have dropped out are even still trading. And that's what you have to do to get a full picture. Whereas it's very, very easy, especially as we live in a world of, of social media to look at one shiny investment and say, wow, this, this person is, is amazing. They're the next, this or that.
Adam Lawrence: When realistically you might wanna look back and see how many of them they've done, what their real track record is. You know, speak to a few people who've worked with them in the past, et cetera, et cetera. So I think that mindset is quite easy to slip into. And in a, I mean, it's really relevant at the moment. When you looking at a world where, you know, cryptos up hundreds or thousands of percents, depending on what, what coin your poison is or whatever, it, it blows away people's expectations of what a reasonable return should be and what risk is being taken to get those returns. So it feeds that speculator mindset and all of those things that exist inside us, like FOMO and, and all the, all the, all of our behavioral traits.
Adam Lawrence: They're very worst time like this I think Marcus.
Marcus Cauchi: We'll come to the long term investor in a second. There are a couple of things I'd like to, raise. The first is that if you don't look under the covers, it's very easy to fall prey to the shiny myth. There's a scam in finance where you take a million people on an email list and you send half of them a message saying, we believe the market will grow this month and half that will fail, it'll drop this month. And then whichever way it goes, you discard the list that was wrong. And then you split that next list down. And you do the same thing again, again, again, until you get down to let's say a thousand investors. And 12 weeks in it, or 12 months in a row, you've demonstrated that you've picked the market, right?
Marcus Cauchi: And then you hit them for a 10,000 pound investment. Now, that's a lot of money that you're gonna be able to generate, but not because you are any good, it's just, you've played the probability. And those people happened to have had this experience where they got the dopamine hip every month for following.
Checkout the number of companies that have failed with an investor
Marcus Cauchi: And if you like, Adam says, if you don't checkout the number of companies that have failed with an investor. And so one of the questions you have to ask investors is talk to me about the companies that have failed, that you have invested in. Why did they fail? How many of them are there? When did you realize they were going to fail? What action did you take in order to help them turn that around. What did you do apart from cutting cost to the bone? And, again, I think it's far, far too infrequent that investors challenge. Sorry, investees challenge the investors on their track record in this instance, because if you look at the British Venture Capital Association, now, I haven't looked at recent numbers, but this was in the last recession.
Marcus Cauchi: They were talking about a return of 8% being good. Now in Silicon Valley, it's closer to 30%. But in Silicon valley, I think they tend to be a lot more ruthless, but they're also looking for different qualities. They're looking for people who failed and bounced back. Whereas over in the UK and in very much so in Europe, investors are very nervous for people who failed.
Understand their appetites, track record & cultural fit
Marcus Cauchi: So again, I think it's really important that you understand their appetites. You understand their track record. And you dig beneath the surface to get to grips with whether there is a cultural fit, what kind of value they can bring in adversity, your thoughts?
Adam Lawrence: Yeah, absolutely. I think setting understanding like valued people is rarity and undervalued, I think in terms of any business relationship, but certainly investor investee. You totally agree with you there. I think the nature of, nature you mentioned earlier on in terms of the sort of firework nature of CMP, the way I look at the world and with my sports arbitrage and gambling experience, you know, you have to look at what, if you are gonna make a lot of your money from one event, for example, you have to not look at what happened.
What I could have done better in those situations
Adam Lawrence: You have to look at what the probability was of that happening in the first place. It's very easy to look at things when things go wrong and then make a bad decision. So blame the wrong person, blame the wrong thing. First thing I try and do is ask myself what I could have done better in all of those situations.
Adam Lawrence: I think that's a question people don't ask themselves enough, but similarly, it's also quite often the case that things go well and nobody asked any questions at all about why they went well. And going, going back to the example I gave earlier, there's, I've been speaking to people who've been saying, look, you.'ve got crypto has done 500% this year. I I've invested in crypto and made an 80% return over the last 12 months. Well, unfortunately that's pretty crap to be honest with you because the market's at 500%. So why have you underperformed the market so badly? And that's another question people don't tend to ask. So when things have happened, what's the probability of them having happened.
Adam Lawrence: It's a very difficult thing for people to get their head around, but just because you place a bit on a, a horse that's 20 to one and it wins the race doesn't necessarily mean it was great there, and that's what people don't understand.
What are the factors that allow you to get that comfort?
Marcus Cauchi: Interesting. So in terms of where you do place your bets as an investor, then what are the factors that allow you to get that comfort?
Marcus Cauchi: That piece of mind, that this is a, a well qualified bet.
Adam Lawrence: Well, ideally, it'll be the sort of situation that you have seen before, or you can draw some parallels from a really significant amount of data. If, if that's available, if it's not look at the recipes, I I've learned so much from looking at the biggest companies in the world and how the, and at a very high level, what's their value proposition.
Adam Lawrence: How do they do business? You know, why have people like Apple been so successful? Why have people like McDonald's been so successful and different sort of high level strategic advantages. And then trying to find those, one of the things I've found when I've been in situations where I've been trying to raise capital, is that the, the, the private equity or the private debt people are trying to push me into the line of, okay, well, just do this because we know this sector and we know this works.
Adam Lawrence: I'm the one saying to them, but I don't wanna do the same as everybody else. With what I think is an edge, what is a strategic advantage and you need to show me or tell me why I shouldn't try and pursue strategic advantage? Not just because it's quite difficult to raise capital for . Does that make sense?
Marcus Cauchi: Yeah. Well, again, I, I think if you're doing what everyone else does, then you are in grave danger of falling foul of the bubble.
Widows tend to be the biggest speculators when it comes to bubbles
Marcus Cauchi: Widows tend to be the biggest speculators when it comes to bubbles because they've got money, they dunno, really know what to do with it. I've been reading a couple of books on, the historic bubbles and, the tulip bubble, widows were big losers. The south sea bubble, widows were big losers because they, what they did was they invested emotionally.
Marcus Cauchi: And they put, they placed all of their bets into those, areas because they saw massive returns. And I think greed is a real problem when it comes to investment as well. So let's come back to where you are at the moment in terms of property because I'm curious to see if we can find parallels here.
What is it that causes you to invest in a particular segment within property?
Marcus Cauchi: I mean, the advantage of property is it doesn't answer back and, you know, the, you know, the property's there, it's an asset. People are trickier. So let's look at the property market. What is it that causes you to invest in a particular segment within property?
Adam Lawrence: Well, diversification is a big part and I think what, what you said earlier is true in terms of it doesn't answer back.
Adam Lawrence: What I saw 10 years ago was a world that looked like a very low interest rate world that had emerged. And it seemed to me fairly obvious that I wanted to be a borrower rather than a lender. So ultimately I was looking at prices had come down yields, therefore had risen. The cost of raising debt had come down.
Adam Lawrence: The future in the UK property market looked relatively bright in terms of constant supply side restrictions and all the rest of it. And so the direction of travel to me was fairly obvious. It would, it would never be get rich quick, but it could be, get rich slow. And there's lots of ways to diversify within property.
Adam Lawrence: So, and, and that would obviously apply to any, any sector you wanted to invest in. If you would just go after one company, you're gonna take all the risk that comes with just being involved in the investment in one company. You might be better off to be invested in 10 or 15 tech companies. If you decide tech is what you want the exposure to.
Adam Lawrence: And I've used very much, you know, in property you can diversify in terms of, you know, residential versus commercial. Your tenant types, your geographies, the employers, those tenants might work for all sorts. The social, the demographics of the people that you are, housing, social housing versus private sector.
Adam Lawrence: There's lots and lots of ways to do it. So I think the diversification within property attracted me quite a lot. And also the ability to sit by and hold, create a business effectively that have cashflow in the now is not gonna set the world on fire with a few, few properties or a few buy to lets. But ultimately you could buy sensibly on the way in, I think property's easier to buy a discount than stocks and businesses are.
Adam Lawrence: You can make money, cash flowing pretty much every month with the occasional wobble until you have a pandemic. Of course. And then at the end you can make money in terms of capital growth. Cause it's been relatively robustly inflation proof over the years. So flow volatility, solid returns, easy gearing, decent return on investment.
Adam Lawrence: And I think I, I really, I pretty much stolen everything I've done from one of the big investors or, or one of the big corporates and Warren Buffet's approach. I think going back to what I was saying about probabilities, it seems to me, there are, there are a million possible worlds that could have played out since Warren Buffet was born and 999,000 ,199, 99 million of those see Warren Buffet as a very wealthy individual.
Adam Lawrence: He hasn't taken too many risks in order to build the portfolio that he's got. And yet in some of those wealthy might have been worth 3 billion instead of a hundred billion or 300 billion. But the slow and steady wins the race approach, and that the solid fundamentals are just things that translated really well for me into property, even though Warren buffet hates real estate really.
Marcus Cauchi: Well, again, let's then take that into, the conversation around patient capital.
Qualities for patient capital
Marcus Cauchi: Warren Buffet definitely fits that bill. You know, he's nothing close to a day trader and, if he makes a bet, it tends to be very long term. So again, in, in terms of looking for patient capital as a founder of a business, what are the qualities that you should be interviewing them for and what evidence should you be looking for?
Adam Lawrence: So I think you you'll tell a lot by people's personality types in the first place. And I think as well at the. moment There's obviously a lot of stuff going on to have conversations about. Are they involved in things like cryptocurrency? Are they heavily involved in it? That would suggest they're probably not gonna be the most patient with their returns.
Adam Lawrence: How do they evaluate the opportunities they get involved in? Why from the investor's perspective, why are they having that conversation? Is it because you were recommended? Is it because they want exposure in that sector? Is it because they just wanted to answer a, a phone because you kept ringing them and someone was husling them to get a lead for you, you know, where, where did that come from?
Adam Lawrence: And then translate that back to, again, like we spoke about earlier their track record in terms of investments. Have they tended to be the sort of person who's held on or have they tended to be the sort of person who, who is in and out, in and out, in and out and looking for a good return this quarter and not really worrying too much about the long run.
Adam Lawrence: I think you can tell a lot as well by asking people who they admire in the, in the investment or fund management game, you know, because if you've got Buffet's a good one, because people tend to, to sort of love him or try and criticize him quite a lot. Are they fans of people like Ray Dalio or are they more fans of those who, who, who are big traders, maybe big fireworks.
Adam Lawrence: And then you come back to that whole survivorship bias thing we were talking about earlier really.
Where can you do research to get to the truth?
Marcus Cauchi: Okay. Interesting. That is a good question. Okay. And where can you do your research? Because a lot of these high net worths, if you're looking for angel investment or seed money can be, they're quite anonymous online. And when you get into the private equity and venture capital market obviously, there's an awful lot of armor that's built around these people in terms of their online profiles and personas. So where can you do research to get to the truth?
Adam Lawrence: Well, I think, I mean, I'm obviously gonna be specific to the UK now, but there are organizations that exist either within local enterprise partnerships or are partially funded by central or local government that have venture capital experience. So in the Midlands, you know, mid then has been around for, for some years. And that's a, a pretty good place to start because they're quite helpful apart from anything else. And they're looking for reasons to, to deploy funds and they're looking part of their, the conditioning around their funding will be supporting businesses that are in the local area, helping them to grow.
Adam Lawrence: They've got targets to hit on all of this stuff in order to keep their funding going and keeping themselves going is a, a viable going concern. So they're shorter of good people to work with with good ideas than they are of investors normally. Because they can get you into some of the local networks that you would never see advertised as you try on social media .People wouldn't be tagging themselves in on Instagram to say, I'm here today, XYZ golf club for a, for a business angels meeting or whatever. So I think that's a good way. And the other way I think is to reach out to people who in your chosen area. And perhaps people have got business mentors or perhaps people they maybe went to university with, or other, other networks they can tap into and just do it by word of mouth introductions.
Adam Lawrence: I've had lots of people introduced to me who never would've found out about me. Who were looking to do things perhaps in PropTech or, or FinTech, things like that. And if I've liked them, I've carried on the conversation. I've potentially then introduced them to people that I know who are, you know, much more established in high flying business angels than I ever dream of being.
How do you need to prepare as a prospective investee?
Marcus Cauchi: So how do you need to prepare as a prospective investee to ensure that you are credible and that the deck that you put together contains the relevant information that actually captures and maintains the investor's attention and curiosity?
Adam Lawrence: That's a great question. Well, I think you've gotta start the there's either the MBA style approach, you know, tell me, tell me what you're gonna tell me, tell me, tell me what you told me.
Adam Lawrence: The thing is that can sometimes tend to send the wrong audience to sleep. So I'd be a little bit cautious about that, and I'm always a big fan of playing the ref. It's a bit harder on zoom or a lot harder, but you've gotta research as much as you can about the people who are gonna be there before you deliver the presentation.
Adam Lawrence: Number one mistake that I see is sloppy or lack of detailed or unrealistic financing. So your financials have gotta be solid but that's coming much towards more towards the end of the presentation. At the beginning, you've gotta wet their appetite and you've gotta get them to buy into the concepts. You've gotta get them to buy into you as a person. Start building some of that relationship.
Adam Lawrence: Ultimately it comes back to the old, no like, and trust. I think so how can they get to know you? How can you get them to like you and ultimately, how can you get them to trust you? And I think transparency and track record are the ways to do that ultimately. And I don't think, I mean, look, you see some absolutely magnificent slide decks in the, in the world we live in at the moment.
Adam Lawrence: Thanks to COVID and all the rest of it. I think powerpoints lost awful lots of its power.
Marcus Cauchi: Never had any power.
Adam Lawrence: Awful, all awful stuff.
Marcus Cauchi: It's a death march.
Adam Lawrence: But people want to walk away with tangible financials to look at. And that's ultimately that those, I think those are the two key things that make anybody make a decision.
Funding pitch is a sale
Marcus Cauchi: I think people forget that funding pitch is a sale and I, if you do not make it relevant, you don't understand the individuals.
Marcus Cauchi: You don't understand their motivations. Then I think, you're gonna find yourself just one of many and instantly forgettable. And so it strikes me that it makes a lot more sense before you put your investment deck together for an individual. Then you're gonna end up in a situation where you are gonna be either not timely ,contextually irrelevant to them or not bringing value.
Marcus Cauchi: And I think people rush to do the deck and send that out and pitch. And it's the same problem I see with sales people, they rush to the demo, they rush to the presentation, they can't wait to knock out a proposal. None of those things are part of the sales process. They should be a statement of work, a confirmation of the order, and it should be a culmination of the conversations that you've had for both sides to qualify and get comfortable. So when you put the deck together, the content in there has already been effectively agreed by the audience. And what you're doing is you are confirming what they wanted in order to be able to make their purchase decision or to make their investment decision.
You have to slow down to speed up
Marcus Cauchi: And again, I think this is partly down to ignorance cause people don't know any better. But it's also impatience. You have to slow down to speed up. If you don't do your research, if you don't do your rehearsal and your preparation, if you don't play the man instead of the cards, then chances are you're gonna miss the mark.
Marcus Cauchi: Is that fair?
Adam Lawrence: I think it's completely fair. I think if I looked at some of the, the worst presentations that I've seen, they're normally undone by one killer question. It's not been asked to be particularly difficult, but they just haven't got the answer to it because they don't know the subject. They haven't done the research, they've sent in the best sort of traditional sales character that you've just described.
Adam Lawrence: And the audience just switches off the audience is too sophisticated for this stuff. You know, it's, it's almost an insult really, to be honest with you. And that's why really the, the, the passion of the founder should be the person that delivers the pitch. I certainly know previously, when I've made, one of the mistakes I've made in investing is investing in the person who's delivered the pitch rather than the person who's the, the, the idea driver, the real core founder of the organization. And by not getting know that and doing my research as an investor on that person, the investments gone south, you know, I've only got myself to blame ultimately for that.
Marcus Cauchi: This is really interesting, cause again, I'm seeing so many similarities with the sales process. And again, it just keeps coming back to the human element. If you do not really understand the, the human beings on both sides, you don't understand your own limitations. Another really important part and again, I'd be curious on your take on this is rigorous authenticity. I think you need to be completely transparent because if an investor finds out later that you withheld some information ,or you exaggerated, or you lied, the problem with lying isn't that you get caught it's that the person can never trust another word that comes outta your mouth. I mean, getting caught actually, you know, serves you, right. Shouldn't have done it in the first place. But the fact that you've eroded all that trust and it takes years if ever to be able to, claw that back.
Would you advise people to raise the objections themselves and raise the deficiencies?
Marcus Cauchi: In terms of preparing yourself for those difficult conversations as a prospective investee, would you advise people to raise the objections themselves and raise the deficiencies to give the investors the opportunity to say, well, you know, that's a deal breaker.
Adam Lawrence: A hundred percent I think the best presentations I've ever delivered have had FAQs or objection handling in and have absolutely delighted audiences not by showing them in the main, in the main presentation, but then by showing them afterwards, they ask a question and I can say, right okay, well, we can go to slide 37 here where I've already actually prepared an answer to this in case anyone asks that question. And that just builds an incredible rapport with the audience. So to sort of work that back to what the investee needs to do, they need to have several people from several different backgrounds and different angles look at these things and try and take them apart in a constructive way and say, okay, raise everything that you can, and then work out how you're gonna answer those questions. And I think if you wanna throw a few of them in upfront and say, okay, I can imagine what you might be thinking here is let's say you ask five people and all five of them say, well, what about this?
Adam Lawrence: It might be an idea to get that in the main body of the presentation somewhere, for sure. And then the rest of it, again, it comes back to what you said. A being prepared and B when you deliver your answers, they've got to be confident, they've gotta be authentic, they've gotta be well researched. So don't go into, comming and make a, a big sweeping statement about the hospitality industry in Stratford-upon-Avon if you don't understand the hospitality industry in Stratford-upon-Avon.
Marcus Cauchi: And what if you don't know the answer?
Adam Lawrence: Then you've gotta keep asking people until someone else can help you with the answer I think. I mean, you, you, if you dunno the answer, you mean, you put people on the spot in the middle of a presentation.
Marcus Cauchi: Yeah.
Adam Lawrence: And you dunno the answer. I would just tell the truth. I wouldn't hesitate to tell the truth and say, look, that's a brilliant point and that maybe is a really good idea why I'd love to have you on board because you, I've shown this to a whole number of people and nobody's thought of that question before, and that's really interesting.
Adam Lawrence: So I would use it as a positive, but I would not hesitate to tell the truth.
What happens in times of adversity and what strains, the relationship between investor or an investee?
Marcus Cauchi: I couldn't agree more if you don't know, fess up and either do what Adam suggested or say, you know, great question it's remiss of me not to have the answer. I'm gonna go away and I'll come back to you within 24 hours. But before I go and put in that spade work, I have to ask you, is that a deal breaker? Because I don't know the answer .And qualify it with them. Okay, so again, let, let's have a look at when you have invested in companies, what happens in times of adversity and what strains, the relationship between investor or an investee?
Adam Lawrence: Well, I think the first thing that can go is coms because the founders are, you know, struggling to keep the lights on and all the rest of it and therefore thinking right, okay, well if they can, they can often make a poor decision really, which can be well, I'm not sure if I'm gonna get any more money out of the old people. So I'm gonna have to go out and look for new people which is a mistake in the first place. And therefore, current investor based coms drops off the planet. And that's the worst thing you can do because the new leads are a hell of a lot harder than the old leads and the people who believed in you in the first place may well believe in you again, as long as you've got an answer to the current situation.
Marcus Cauchi: And if new ones know that, the old ones they gonna talk.
Adam Lawrence: And like you said, that's gonna then destroy that relationship of trust as well ultimately. If you're saying, you know, you can't go around saying different things to different people ultimately because circles are quite small when you're dealing with angels and it's just not gonna be an acceptable way to, to conduct yourself.
How can they leverage the investors experience, network, goodwill in order to see them through that difficult period?
Marcus Cauchi: Okay. So when a company is finding itself struggling, or they've hit some form of roadblock or adversity, how can they leverage the investors experience, network, goodwill in order to see them through that difficult period?
Adam Lawrence: Well, I think a lot of people who are in the, the investee, especially if it's their, their first or second foray, they don't really understand much of anything about administration, liquidation, even good negotiation with creditors.
Adam Lawrence: Whereas it's much more likely that the investors will have been through that practices whether that be on the side of, buying businesses that have been distressed or in times in the past, when they've lived through significant recessions or whatever, how they've cope with those things. So you've got the experience, they got the advice to give, and it doesn't take them a lot of time in order to understand the situations and suggest a few outcomes.
The harder it gets, the more the head goes into the sand
Adam Lawrence: And, you know, you said earlier on about difficult conversations and people spending their, their time on the wrong thing. And I think that's what, that's, what can happen in these situations. You know, heading the sand is such a common approach to adversity. You know, the harder it gets, the more the head goes into the sand or the more they try and make promises and sell stuff they can't deliver.
Adam Lawrence: And they backed themselves into a corner, they can't get out. Whereas it might be a much better idea to try and be upfront with the investors about it. And then see what suggestions they've got. If you don't know yourself, of course, nobody knows everything. You know, reach out to those people and see what they say.
Marcus Cauchi: One of the most common ways that I see struggling companies shoot themselves in the foot is rather than having those open, transparent conversations with their investors and with their suppliers and their partners, is they start to compromise.
Marcus Cauchi: And try and sell outside of their ideal customer profile. And they go for any revenue rather than the right revenue. And that puts the business at enormous risk because you end up taking gone customers who you shouldn't have. Who have place demands on the business that divert you from what is your call
Marcus Cauchi: and as a result, your customer complaints will likely go up and chances are very high. You'll start to sacrifice the service that you are offering to your ideal customers, and they will churn as well. And that then becomes a very, very vicious, spiral.
Adam Lawrence: I totally agree. I don't, I don't think there's a business I could relate that more to than letting agencies. Because so many people make that mistake of chasing, oh, this client's got a hundred properties. Okay, great. So they want everything for nothing, right? They, they expect, you know, several members of staff to be at their beck and call. How much does it, I I'm asking questions in these situations.
Adam Lawrence: How much does it cost you to manage a unit every month? You know, what's the marginal cost of doing that? What margin do you make? If you're only letting you're only charging them 6% plus the AT and people don't even look at whether it's worthwhile business or not. They just think big business go after it at any cost.
Adam Lawrence: And quite often it's unprofitable for, for a number of reasons. And they just, they've just got that completely, completely wrong. And it's actually quite basic as to why they've got it wrong. So I think, I mean, I've seen that in a number of different businesses, but state agency's is the killer here. And the state agency's been driven in that way with burkle bricks and people like that, you know, it's all about the cost.
Adam Lawrence: Well, really, I would've thought it'd be all about whether you sell your house or not. You know, that's the thing, there we go.
Four different types of seller
Marcus Cauchi: Well, again, I think that if you know how to sell, then it always becomes about the money. My friend, Simon Bone describes four different types of seller. You have a pill pusher, no one wants to pay a lot for an aspirin. So in the absence of value, the conversation descends into price very quickly.
Marcus Cauchi: Then you have the authority figure and these are all over LinkedIn and Facebook claiming that they have, you know, the magic dust. And the problem with authority figures is that they all sound the same. Now people come to them cause they want answers. But the problem is because they all sound the same. They tend to descend into sounding like everybody else and they become pill pushers. Then you have the heroes seller and the heroes seller is someone who people come to for their strength because they want to be defended. And they, you know, tend to, have a lot of bluster about them and they beat their chest and they shout at their audience and whatever.
Marcus Cauchi: And then there's an enormous gap between the heroes seller and the sage seller. And people come to the sage seller because they hope that some of their wisdom, their smarts will rub off on. them And those are the sorts of people who can command premium prices. They have a waiting list of customers .They're known because of their capability.
Marcus Cauchi: When they phone someone up and they show up on caller ID, people take their calls. They don't get shunted to voicemail and they don't get ghosted. And I think if you are, if you're a founder or you're the owner of a business, It's really important that you learn how to move to that position quickly.
Marcus Cauchi: The sales side of your business is the lifeblood of, your operation and throwing all your money into product development, because you're a technician I think is another huge mistake that causes companies to fail. And then you end up with nothing and the liquidators come in and sell you at tempe in the pound. And you, you know, you are working behind the cheese counter in Tesco before too long.
Debt and its implications in investment
Marcus Cauchi: Okay. Let's talk about this other huge bug bear. 30 years ago, there were two merchant banks today, there are 8,000 VC firms and that has driven up the price of investment for VC and private equity. And the net result of that is, that in order to be able to make their fund go further, they have to drive their investees into debt. So let's talk about debt and what that, what the implications are if you're taking investment.
Adam Lawrence: Well, you've got a fundamental problem, aren't you? Because you go back to what I said about what attracted me into the property space seriously about 10 years ago. It was that low interest rate.
Adam Lawrence: So ultimately, debt at these, at these effectively tiny number of basis points that are available at the moment. Generally speaking is very attractive from a corporate point of view, and you want to be sort of utilizing and leveraging that as much as you can. Now, the problem can be pricing apart from anything else, especially in a small startup, because there's no shortage of companies that wanna be at, you know, 3% a month and, and things like that.
Adam Lawrence: And if you dunno how to appraise these things, you might be looking at it as well. It's only gonna cost us 2000 pounds a month and we can afford that. But. What owners is it putting on you as the, I've known plenty of founders have to provide things like personal guarantees, which then puts themselves under personal pressure. And they haven't really coped with that sort of sort of frantically hanging over them before and it then affects their decision making, affects their sleep, affects all the rest of it. And then that they're in trouble because of that. And there's something very addictive about it's kinda like this morphine drip of relatively low cost debt isn't it? And how the world I, I, I can't even pretensive say Marcus, I understand how the world is gonna wean itself off its incredible low cost debt situation that we're in at the moment and that's the problem we're gonna face over the next decade. From the investees' perspective, they've gotta be careful. They've gotta protect themselves and they've gotta be able to make, you know, you you've gotta have payment plan. The, a payment plan cannot look like, I'll just get some more debt in 12 months. Because that's how every good Ponzi scheme starts, right? You, this is not a way to run a going concern and it will just, end up spiraling until your personality runs out. Or your investors run out of steam. Realistically, you know, there's plenty of companies. There's very, very few Amazons who can go 20 years without making a profit for all of the ones that explode all the WorldComs and all the rest of it that explode in fireball's worth of debt and equity, misery. And there's gonna be lots and lots of blood on the carpet on that front within the next few years, because if you can't make things work at relatively low rates of debt, then what happens when the interest rate does go up?
Adam Lawrence: We haven't been in a well, I mean, in the us, they have a, a little bit, but it came down pretty quickly. But we haven't been really in a rising interest rate environment for 13 or years now or something like that. So people soon, forget how to handle these environments. You know, that, and that that's another problem.
You need to understand the finance
Marcus Cauchi: I think there are two things that have come out at this part of the conversation. One that you need to understand finance. And if you don't understand the finances, the implications, you can't read a balance fee then for fuck sake, get some help and learn it. And the other thing is become a student of history.
Marcus Cauchi: Bitcoin plummeted yesterday because Elon Musk said that he was no longer going to take payment in crypto. And crypto Tesla bubbles. The certainty the tech investment market a bubble. I, if you study history, it's patently obvious, but the problem is if you are fueled by greed and you buy the myth, and that's the thing that really, really angers me.
You need to surround yourself with better people than you
Marcus Cauchi: About the investment market that they've pedaled this myth, that you're gonna become a unicorn. I dunno what the percentage of unicorns is, but it's fucking small. And even the whales and elephants of a pretty tiny proportion. The bulk 80% plus die on their ass and are never seen again. And you know, you only have to look at WeWork, you know, WeWork, the, the founder went for 10 million. And they said, oh no, take a hundred million. You're 24 years old and you've got a hundred million dollars to play with. Of course you are gonna fuck it up. It's it's almost inevitable. So you need to surround yourself with good advice. You need mentors, you need people who will tell you when your ego is getting in the way. You need to surround yourself with better people than you.
Marcus Cauchi: If you allow yourself and your ego to get in the way of building a good business, then shame on you. And you deserve everything that you're gonna get, in terms of the downside. And I think there's this other fundamental, which is you need to build fundamentally strong businesses. And one thing that I see where the speculators get involved is they really don't care about strong fundamentals. What they wanna see is just unbridled growth. They want more logos and more revenue. Forget profit because chances are eight outta 10 if they actually did make an exit, they're gonna flip it to one of their mates.
Marcus Cauchi: They sell it to another VC, or they sell it to another private equity company. In return, in two years time when they need to get out of their fund and pay their investors back, they'll buy one of their companies.
Adam Lawrence: It's so true. I mean, you look at what's sold and you look at the, the sectors where there have, this has played out in the UK in the last decade or so. High street restaurants will be, and there's nothing to do with COVID. High street restaurants would be a classic example of this where you've got all sorts of people from Jamie Oliver down to lots and lots of other organizations who just haven't been able to funda fundamentally make the numbers work because it's too commoditized and no brand is strong enough to be able to put the personality you need to put into a restaurant. Last small fulfillment deliver it through a topical one at the moment, you know, where, where is the business model and where does it have to go?
Adam Lawrence: And of course the market's reacted a bit differently to that one but you know, it still got to IPO, a burgeoning number that has, that has sound like a stone really, since it was launch.
Marcus Cauchi: There is something else if we look at a lot of these brands, what they've done is they've gone down the route of centralizing the heart of what that business was about.
Marcus Cauchi: If you look at Jamie's, what he did was he started creating all these dark kitchens and the food quality went down, the service went down. I remember going to one of his restaurants just before it, it crashed and burned and half the wine wasn't on the list and they didn't have the food there and whatever, and the experience was poor.
Marcus Cauchi: The food that we got was fine, but it wasn't what we wanted .And the experience has been lost. And, this is where, when you go for funding, you've gotta be really careful because, when an investor comes in, the wrong type of investor, the bad money, what they will start to do is they will have your finance, the finance people start cutting to the bone and the things they cut are the things that your customers care about.
Business exists only because of the customer
Marcus Cauchi: And that is a major problem because business exists only because of the customer. The moment you forget that, then you're on a downward spiral. And If your business is not built around the customer and all of the operations that touch the customer in any way shape or form marketing ,sales, customer service, customer success, account management, operations, professional services, it finance legal.
Marcus Cauchi: If they're not built around the customer, the customer will march with their feet and they will go somewhere else because if those outcomes that they need, that they are paying you for and bear in mind, they do not buy your product, they do not buy your service, they pay for outcomes. If those outcomes are not being met, they will go somewhere else. Now experience is important. But it is nothing in comparison to the outcomes and the other factor that is really critical and this is where things go horribly tits up, of is where the employee experience suffers because of the pressure. And you see this at the end of the quarter, sales people are forced to go out and try and get customers to buy before they're ready.
Marcus Cauchi: They strip out their pipeline for the next month or quarter. So they're put under even more pressure to do the thing they hate the most, which is prospecting and customers resent it because when they get told that there's a fireside sale, that sends alarm bells. And what that does is it creates unnecessary risk in the buyer's mind and the person that they're going to get, or the organization that they're going to get to mitigate that risk is the vendor.
Marcus Cauchi: I've interviewed a, a fabulous CEO recently. And he said, if he has any doubts, he will wait until the 11th hour. And then he will slap them for a demand for a discount because he sees it as an insurance premium. They have to carry that risk.
Adam Lawrence: Yeah. That makes an incredible amount of sense I think Marcus and I think that point around again, look at what I said earlier on, around taking my cues from the biggest and the best in the world. You know, look at how look, how Amazon treat their customers. Look at how Apple have worked on customer experience and, and the product is built around the customer ultimately. And, and that trickles all the way down into SMEs and micro businesses at the end of the day.
Best investment mistake
Marcus Cauchi: Absolutely. Adam. I'm really disappointed we've come to the top of the hour. So we need to start wrapping up. Tell me this. What's your best investment mistake?
Adam Lawrence: Best investment mistake I think a cheap one where I bought into the right company with the wrong person and managed to get out before, managed to get out pretty much with my money back and having had wasted a lot of time, but learned an incredible amount of stuff for a cheap price.
Adam Lawrence: So paid for my education in time, rather than money in that one. So that would definitely be, that would definitely be the, so I think I'm, I tend to be a bit over optimistic sometimes and think that I can maybe rescue a situation that can't be rescued or I can, I can look past one or two things that maybe raised alarm bells if I've gone a bit more slowly.
Adam Lawrence: So I tend to force myself these days to do things like don't decide things on the day, you know, sleep on it. Make sure even if you're a hundred percent sure you're gonna do it. Sleep on it and answer it in the morning. Cause you just never know where your mind is gonna wander to, you know.
Marcus Cauchi: Have, have you developed checklists?
Adam Lawrence: I mean, I think I look for, I look
Marcus Cauchi: That's a no.
Adam Lawrence: I don't think you can change people's values Marcus, you know? So if you think I know it's more it's more holistic I think really because, you know, it's somewhat, people say, people love saying, oh, my values are that I'm authentic and I'm this and I'm that. I'd much rather observe their behavior.
Adam Lawrence: And I would rather divine what I think their values are as quickly as I can, when we have, you know, several conversations, meetings, presentations, whatever. And then act on the basis of what actually, I think you live your values, you know, you don't tell people what they are, because talk is cheap ultimately.
What would you recommend people read, watch, listen to, to become more investor savvy?
Marcus Cauchi: Okay. Fed is okay. What would you recommend people read, watch, listen to, to become more investor savvy?
Adam Lawrence: Oh, well, there's a few. I mean, I, I I've, as I said, learned a lot from looking at watching many Warren Buffet interviews and things like that on YouTube, they they're great to watch. I think Ray Dalio's principles is a great book about doing business and beyond that about life in general, really, to be honest with you.
Adam Lawrence: And I think it's good to keep abreast of what's going on in the investment world. So you've got topic so you can talk about crypto with confidence, even if you haven't got a watcher. in it You'd never put a penny in Tesla or, or anything else, you know? So I think keeping yourself abreast of things like that is a good idea.
Adam Lawrence: What's going to matter to investors, there's still, you know, the, the volatility indices, or however you wanna measure fear are still higher than they would be in a relatively normal trading period. And we all know there are no relatively normal trading periods. Anyway, that's the load of rubbish. So they're still sort of hundred percent higher than maybe where they, they should be.
Adam Lawrence: What are people concerned about? The moment, risk, risk, risk, risk, risk, downside, risk, massively concerned about that. And the right of investors won't be those investors bought Bitcoins in 12 or whatever you, so people, people who are really you realistic risk are going on. What about companies that are heavily dependent on commodities?
Adam Lawrence: Because. For ex my, my parallel would be construction. For example, where materials prices are shooting up through the roof at the moment. Now, how can people diversify against things like that? What should they be looking, getting involved in and have a, I think having an answer for people and not necessarily, I'm gonna tell you what the answer is, but I'm certainly gonna plant a few seeds in your mind, such that you go out and think haven't thought about that.
Adam Lawrence: You know, how do you, how do you delight people in a conversation? You know, you give them something, they haven't thought of. And then maybe suggest a couple of answers and they'll go away and do their own thinking about it.
What one bit of advice would you give idiot Adam aged 23 that he would've probably ignored?
Marcus Cauchi: Excellent. Okay. You've got a golden ticket and you can go back and advise the idiot Adam, aged 23. What one choice, bit of advice would you give him he would've probably have ignored?
Adam Lawrence: God definitely was an idiot. I I'd have said go and do two or three years a decent size consulting firm that is ideally get involved in things like business rescues and business turnarounds. And then go off and, do what you wanna do for yourself and enjoy those two or three years.
Adam Lawrence: Learn everything you can. Meet some brilliant people and then take, take that knowledge. Cause it will be an incredible learning curve and fly with it. He definitely would've ignored it as well. Definitely would ignore it.
Marcus Cauchi: I know best. I know everything at 23.
How can people get a hold of you?
Marcus Cauchi: Adam, how can people get a hold of you?
Adam Lawrence: So I'm on LinkedIn, Adam G. Lawrence. Easiest place to find me. I'm also on Facebook on Adam Lawrence and also im the partners in proxy business, which is a, a property community of investors, developers, traders, not your usual sales funnel crap, but actually a group of people who are really passionate about property and are doing it day to day.
Adam Lawrence: So easy enough on either of those Marcus.
Marcus Cauchi: Excellent. Adam Lawrence. Thank you.
Adam Lawrence: Thanks so much, Marcus.
Marcus Cauchi: So this is Marcus Cauchi signing off once again from The Inquisitor Podcast.
Marcus Cauchi: If you found this insightful, useful, helpful, then please like comment, share, and subscribe.
Marcus Cauchi: And if you're feeling, how can one put this opinionated, then please go onto Apple or Google podcast and leave an honest review.
Marcus Cauchi: I don't care whether it's one star, three star or five star. Just leave an honest review as to why you listen to the podcast. Why you shouldn't or otherwise. Now, if you are the owner, CEO, founder of a tech company in the 10 to 50 million mark, and you genuinely wanna grow a great business, that's built on strong, strong fundamentals. And you wanna achieve massive growth and I'm talking 200% plus per annum.
Marcus Cauchi: And I know it sounds unfeasible, but actually I've yet to come across a business where I could not find.400% growth latent within that business within the first year. So if you wanna achieve sustainable, profitable, hypergrowth with highly engaged marketing sales, customer success, account growth people who win you customers for life that stick with you five years, 10 years, 15 years, then let's schedule time for a brief conversation.
Marcus Cauchi: And maybe I can save you time and blood sweat and tears working with gamblers and speculators. So you can email me at Marcus @laughs-last.com.
Marcus Cauchi: Look forward to speaking to you all soon. Take care, happy selling. Bye-bye.
