During my college years, I worked part time at a high-end sporting goods store, operated by a great merchandiser. His customers included a long list of equally great merchandisers including Izzy Sharp (Four Seasons), Murray Koffler (the founder of Canada’s largest drugstore chain), and Dave Nichol (the founder of President’s Choice, a private label store brand for a leading grocery chain). Each had their own unique style but they all had a vision for what customers wanted and they drove incredible success for themselves and their brands.
Later in life, I became a regular customer of Four Seasons and what drove my loyalty was the way I was treated. The hotels were differentiated but the service was always the same high quality. For the longest time, Four Seasons was peerless.
Capital is getting cheaper. Operating judgment is not.
Once financing becomes abundant, the spread moves away from “who can buy the asset” and toward “who can actually make the asset perform.”
That changes the economics of private markets. Financial engineering can improve entry price and capital structure, but it cannot manufacture customer retention, labor productivity, pricing discipline or execution speed.
The operator eventually wins because operational alpha compounds inside the asset, while financial alpha is mostly harvested at entry and exit.
If capital keeps commoditizing, the scarce input becomes someone who can make an ordinary business materially better.
This is a great article. And, what you write about is not applicable to just hotel operators. I cannot speak to technology companies, but in most basic businesses it takes entrepreneurial and operating talent to really build things and create value.
I guess I would be considered one of the dreaded financiers referenced in the article. Even so, I have never thought the success of an enterprise which I have taken over or otherwise been involved in was up to me. I might see the shortfalls that make a company a viable target for material value creation, but it takes people far more skilled than me in the operating arena to make it happen. I have always been in awe of those with the skills to lead a business to greatness.
During my college years, I worked part time at a high-end sporting goods store, operated by a great merchandiser. His customers included a long list of equally great merchandisers including Izzy Sharp (Four Seasons), Murray Koffler (the founder of Canada’s largest drugstore chain), and Dave Nichol (the founder of President’s Choice, a private label store brand for a leading grocery chain). Each had their own unique style but they all had a vision for what customers wanted and they drove incredible success for themselves and their brands.
Later in life, I became a regular customer of Four Seasons and what drove my loyalty was the way I was treated. The hotels were differentiated but the service was always the same high quality. For the longest time, Four Seasons was peerless.
Brilliant analysis!
Real talk! What edge is there in negotiating the cost of debt from 8% to 6% anyway?
This sums up the culture point well: https://substack.com/@forgingvalue/note/p-196336023?r=aef7h&utm_source=notes-share-action&utm_medium=web
Capital is getting cheaper. Operating judgment is not.
Once financing becomes abundant, the spread moves away from “who can buy the asset” and toward “who can actually make the asset perform.”
That changes the economics of private markets. Financial engineering can improve entry price and capital structure, but it cannot manufacture customer retention, labor productivity, pricing discipline or execution speed.
The operator eventually wins because operational alpha compounds inside the asset, while financial alpha is mostly harvested at entry and exit.
If capital keeps commoditizing, the scarce input becomes someone who can make an ordinary business materially better.
This is a great article. And, what you write about is not applicable to just hotel operators. I cannot speak to technology companies, but in most basic businesses it takes entrepreneurial and operating talent to really build things and create value.
I guess I would be considered one of the dreaded financiers referenced in the article. Even so, I have never thought the success of an enterprise which I have taken over or otherwise been involved in was up to me. I might see the shortfalls that make a company a viable target for material value creation, but it takes people far more skilled than me in the operating arena to make it happen. I have always been in awe of those with the skills to lead a business to greatness.
Working on this. I like to be James