These days, the only time I have to read is being stuck on a long flight. On the way back from London, I flipped through “The Road Less Stupid” by Keith J. Cunningham. 

There was one particular concept that I thought was quite relevant to us and our investment process. Recently, we have discussed that “we are overthinking things” or equally unpalatable excuses for making the wrong decision on an investment opportunity. The author would suggest another framing:

Having the right answer is smart. Having the right question is genius. Or as Peter Drucker said, “Most serious mistakes are not being made as a result of the wrong answers. The truly dangerous thing is asking the wrong question.”

The point is that when we ask the wrong questions, we will get answers to those wrong questions. Even if we have the right answers to those wrong questions, this doesn’t lead us down the path to making the correct investment decision. Here are two quick examples that I can think of about founder quality:

1. Founder vs. Employee Quality. I asked a portfolio company founder for a reference on a NewCo founder, who said that the NewCo founder wasn’t a very good payments engineer. Based on that, he wasn’t going to invest in NewCo. I took that reference at face value, but this reference was about the NewCo founder as an employee. I should have asked about founder qualities, not employee qualities.
2. Founder Quality vs. Other Proxies. It’s only human to want to use proxies, analogies, or comparisons to the past. In Pat‘s post-mortem on a company, he pointed out that we mistakenly used founder-market fit as a proxy for founder quality. In other examples, we mistakenly used distance-traveled, which is a good proxy for grit, as a predictor of founder quality, but as Sir Michael pointed out to me, “a survivor is not necessarily a success.” Proxies are sometimes useful heuristics. They may be necessary, but they are not sufficient. Avoid proxies and focus on the first-order question: founder quality.

I am sure each of us can come up with our own examples where we didn’t focus on first-order issues and that led us astray.

Our job is to clarify the right questions to ask. We might ask many more questions during our diligence process to be thorough, but afterward, we need to distill, think critically, and focus on the set of 1-3 first-order questions and issues to make the best decisions.