What do running a sawmill and managing a hedge fund have in common?
By Kyle Dunn, CEO of Meyler Capital.
Most that manage money have never worked in a high tech, modern saw mill. I have. They are efficient, high tech, and fast. Four foot diameter trees are reduced to 2 by 4s in minutes, waste product is chipped and sold to make paper or energy, and lasers are everywhere. It really is impressive.
Millwrights are forever tweaking the “machine” trying to improve its performance, pushing to get a few more hundred board feet per shift. They poke and prod, making little fixes here and there, but for the most part they just stand there and watch the boards go by. That is until the “anomaly,” the moment one big piece of wood does something the previous 100,000 didn’t do. Things break, it gets intense and the millwrights work their assess off until the wood starts to move again. They then spend the next 6 months talking about what happened, and telling everyone why it can’t happen again – but something always does.
If I have to point out the analogy I am trying to make, we are all in trouble.
What’s my point? Well one day I was swamping behind the trim saws when the entire mill shut down. Everything was silent, ten acres of gears, chains, and saws just stopped moving. The millwrights were panicking, even the “yellow hats” (the labours – me) were running around trying to find out why the mill shut down. No one could figure it out. About 15 minutes later a “white hat” (management) came strolling into the midst of it all and gathered everyone around. His words were short and to the point, “Gentlemen, we had to shut it down – we don’t have anyone to buy the wood.”
Any benefits that were gained in the 1000s of hours the millwrights spent coaxing a few more board feet out of the “machine” were lost in a single afternoon.
Perhaps a little more time should have been invested in trying to find someone to buy the lumber?
Our industry is obsessed with performance, however, at a certain point it is to the detriment of the manager. Will going from 17% – 18.3% really make a difference? More often than not the answer is no. Once the fundamental strategy has been set, and a decent track record achieved, the only way to really drive AUM is marketing.
Managers need to pre-determine the point when they switch from managers to marketers. And I understand that you need to keep the mill running, however, at a certain point they need to make the transition from a performance orientated firm to a marketing oriented firm. It is quite a severe shift to make.
The first step, recruit marketing expertise, either hire someone internally or pull in a 3rd party marketer. And I am not talking about a placement agent. You haven’t earned the right to be “in market” yet, and chances are your marketing platform isn’t strong enough.
Pull in someone that understands branding, how to build community, CRM systems, and such. Look for people outside the industry. Find someone that has worked on the BMW account. These are the people that know how to market. And don’t worry if that person doesn’t know a single person in the industry. In this business, you can throw a rock and hit 427 people that can get to the people you want to talk to.
If you take away all the noise there really is a large arbitrage opportunity. All you are really trying to do is bring your marketing proficiencies up to a level that matches your investment acumen. When you started your fund, did you go out and hire an average quant guy? No, you brought in the best person for the job.
At the end of the day, good performance alone is not enough. Investors are looking for people to believe in, companies to believe, stewards of capital strong enough to maintain relevancy in the age of information. It is impossible to portray this image with subpar marketing.
To find out more about Meyler Capital click here.