…Hogs Get Slaughtered

"Pigs get fat, hogs get slaughtered" — old folk saying

What a two weeks it has been. Who knows what firm will be the next victim of Darwin.  I told you all to buckle up last June because things were going to be interesting. With the Fed letting Lehman go down, now everyone is starting to wonder about whether their bank, brokerage firm, etc be next. Confidence in the system has taken another hit. Lot has been written on this, so I will not jump in other than to say that this is what happens when the pigs become hogs (e.g. greed takes over).  While it is the investment banks and such getting taken out back to be shot, it could be any of us. Lose your moral compass and you will eventually hit the rocks.

What the heck does this have to do with VC and entrepreneurship (this time)? Well, it's a great reminder to be your own moral compass. What I mean by this is that when you create and sell something to someone else, look yourself in the mirror and do a reality check. Just because someone might be gullible enough or uninformed enough to buy something doesn't mean that you should sell it. I have seen way too many portfolio companies fail to live up to their potential, too many entrepreneurs fail to deliver what they promised to investors or customers and too many VC's not bring the value that they claim they will.  I understand everyone has to sell and that we are, to a great degree, in the dream business. But, if you know that your portfolio company is overvalued on the LP quarterly report or that your product doesn't really do what you claim with the customer, these will eventually come home to roost. Demand excellence from yourself and from your companies and if you come up short, find ways to continually improve to be what you want to be versus pushing harder sell the pig with lipstick.

Buffett's sidekick, Charlie Munger, said it best recently:

People were distributing stuff that they wouldn’t buy themselves. It is the structure of the modern world. Favorite philosopher: Frankl. He said the systems have to be responsible. People who are making decisions must bear results of decisions. In Rome, the builder and designer stood under the bridge when the scaffolding was removed. In parachutes, you pack your own chute. Capitalism works that way too. At a restaurant, owner is bearing the consequences. If he slips, he doesn’t do well. Frankl would be pleased with restaurant business, and not pleased with investment banking. They sell, take the money, go home – it doesn’t work.

In my mind, money earned in this way (whether Ibanker, VC or entrepreneur) is Blood Money and relies on the Greater Fool theory. That is not how great companies are made gang. So, look in the mirror tomorrow and do a gut check…