The formulas, tricks and trade secrets of Private Equity

Mistakes of Ambition Vs Mistakes of Sloth

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All courses of action are risky, so prudence is not in avoiding danger (it’s impossible), but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer. Niccolò Machiavelli

Private equity is a juggle of many roles, most of which rely on explicit risk calculation. And as with any juggling act, mistakes are inevitable. But that’s okay because we learn from mistakes and we probably learn more from mistakes than successes. However, there’s a catch.

If I touch a hot plate and burn my hand, I learn that it’s hot and that I shouldn’t touch it again. If I touch it again, then the mistake is reinforced. But if I continue to touch the hot plate, I’m not learning a whole lot more, I’m just getting burned.

We make mistakes of sloth (laziness) every day. We know laziness, contemplation and apathy are all toxic to progress. So, just like touching a hot plate over and over again, being slothful loses it’s punch pretty quickly. We may get some other benefit from being slothful (such as relaxation), but an education isn’t one of them.

On the other hand, mistakes of ambition are generally different day-to-day. We tend to learn something profound from each and every ambitious pursuit, even if it’s not immediately obvious.

In the context of private equity, you’ll learn nothing from NOT contacting a potential investee. But at a minimum, you’ll fine-tune your ‘get around the gatekeeper’ skills if you do call. And more than likely, you’ll have a valuable chat with an industry professional, which may even lead to a successful investment. The same goes for investee improvement; you’ll learn much more from conducting analysis and making suggestions, compared to doing nothing.

If things aren’t going as you planned, is it due to mistakes of ambition or sloth?

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