Managing M&A at a High Scale; Zhang Yiming; Economics #107

Reflecting on a few interesting reads and listens over the past week

Managing M&A at a High Scale

This is a great podcast featuring Jeff Bender, who leads one of the groups (Harris Corporation) within Constellation Software. He provides a fairly transparent view into life at Constellation Software starting from the types of companies we typically invest in (founder-led businesses, PE-owned businesses or corporate carve-outs), how our M&A team is organized (business development vs. M&A execution), how integration works, and our overall governance process when we make investments. 

There are a couple of points that Jeff makes in the podcast that I'd like to iterate/add onto: 

  1. Jeff mentions that it takes ~4.5 years from initial contact to close (whether it's acquired by Constellation or someone else). In my opinion, this will increasingly be a key part of what differentiates certain investors (like Constellation) vs. the broader market who may not have the same type of patience to follow a business for 4-5 years and wait for it to transact. Most investors today appear to have a mandate that requires them to deploy capital as soon as possible. 

  2. Much of Constellation's success boils down to the compounding effect of building good habits around investing. As I start to get more reps, I've learned to appreciate the process more. 

As a side note, Kison's podcast (M&A Science) is a great tool for those who are looking to learn more about how M&A works at various organizations. 

Zhang Yiming’s Last Speech

For those who don't know, Zhang Yiming is (or at least was) the CEO of ByteDance. This is a translation of his last speech at an all-hands annual meeting in March 2021. I found this to be quite insightful and relevant for everyone (regardless of your interest in the company). 

Here are a few excerpts that I enjoyed: 

Everyone is Ordinary

As our business has grown, I have gotten to know more and more people, including many very special and capable people. One of my own feelings is: maybe there are some differences in knowledge and experience, but from a “human” point of view, we are still very similar to one another -- we are all ordinary people. But there is one thing that is different.

For people who achieve great things, they often maintain a very ordinary mentality. In other words, if you keep an ordinary mind, accept yourself as you are, and do well for yourself, you can often do things well. 

Handling Growth Anxiety 

Some companies start their annual meeting by saying that the company is doing very well, the business is doing very well, and next year will be even better. I don't really want to stress this to people. There are always various situations in business, there will be ups and downs. Some people often ask me, "How do you deal with anxiety? Your company went up 100% last year, but will it still go up by 100% next year?”

I usually reply by saying: Why must our company grow 100% next year?

Of course, we hope that we can grow at a high rate, but you should not let “growth anxiety” affect you. Now the company's business growth is indeed very strong, but we can't indulge in past achievements, nor can we linger on past mistakes. At the same time, we can't have the inertial expectation that our company will definitely become...something! Keep your eyes open to see your environment clearly, understand your users, make good decisions without distractions, and the results will be what they are.

Dealing with Competition 

Competitors may have good approaches to product innovation, marketing strategies, etc. that you should learn from. Even if there is a critical media article planted by a competitor, we read it carefully instead of being angry. Maybe 80% of the article has problems, but 20% can give us inspiration, then we should absorb that 20%. No one will be as serious in finding your problems as your competitors.

Of course, we should also keep in mind "do not compete for the sake of competition". Sometimes, after a prolonged period of competition, the only goal becomes simply beating the competitor.

Going All-In is Mental Laziness 

Many people in business will say they want to go “all-in” and end the battle at once. I think there is a big problem with teams that just say “all-in”. All-in is sometimes a type of mental laziness. If you have thought very clearly about the strategy, then there is no problem. But my feeling is that in many cases, it's just "I don't want to think about it anymore, let's just do it, let's just go all-in, let's just gamble."

There is another way to take shortcuts: excessive abstraction, excessive pursuit of methodologies. My own feeling is that methodology is actually not that useful, and in most cases, may even be of little use. Because applying abstraction is equivalent to adding leverage to your thinking. But if this leverage is applied to the wrong thing, a slight deviation in abstraction can produce a massive mistake in results.

In fact, this phenomenon has a counterpart called "rational conceit", which also maps to human ego, because the limitation of knowledge is very obvious. A lot of knowledge is unstructured and excessive use of abstract concepts is actually not helpful for understanding. Avoiding excessive abstraction is also a kind of ordinary mind.

A Free Course On Economics 

This is a great resource put together by Marginal Revolution University (via Tyler Cowen). I am a strong believer that a lot of what happens around us can be explained by economics and incentives. This playlist goes into the fundamentals in a consumable manner.