January is a favored time for searchers, entrepreneurs-through-acquisition, holdco managers and SMBtwit radicals to publish annual letters. I usually get a handful of questions about if I write one and if they might get a copy. It always make me cringe a little. I then spend 30 minutes (or more) thinking about why I don’t publish one. I am a card-holding member of the abundance mindset, right? I have experienced first-hand the benefits of reading other’s letters. Am I just a greedy pig?
I don’t think so.
I have written an annual letter since 1999. The first ones had an audience of one –my future self. I was 19 years old. After a few years I began to share this annual report as a cover letter to my loan officer with my financial statements. That worked fine until the loan officer showed up with a printed copy of my letter with the phrase “addict of change” highlighted in yellow marker and a quizzical look on his face: “Tell me about this…” Shortly thereafter, I came to the realization that an annual letter ought to be written (and restricted) to the equity partners. Other stakeholders need other forms of communication –like blog posts! Thus, I would revert to my original audience of equity holders only. From that banker meeting forward I would be as transparent as I could to my future self… addressing the primary question: “What were you thinking?”
In 2016 I began our current investment partnership with a key vendor, Mikel Berger, and a handful of friends and family. One of the surprises of Little Engine Ventures has been how much partners have sharpened my communication, and thinking. Of course, there was plenty of room for improvement so this wouldn’t surprise my banker from my 20’s. I am still waiting to surprise Mikel.
My letters now have to consider and weigh the ideal resolution of thought and context. I couldn’t write 100 pages of rambling or I’d lose people’s attention. I didn’t want to provide too many dirty details and miss the proverbial forest for the trees. However, I wanted to go deep enough that partners had special insights about whether they ought to stay or go. Still, I did not want to go so deep that they felt obligated to become active. I wanted to write like our roles were reversed. What would I need to make a decision about my fit within this group of partners?
My goal with our current annual letters is still to address the motives and strategies behind the capital allocation of our equity. My goal is NOT to woo would-be sellers or lure in additional partners. I also try to write in a way that scare away people that are mismatched with my present mindset. To be clear, I am not saying I do not care about prospective investors. I use other things (like this blog) to produce the right kind of stink. I chase off the misfits and draw in the flies. I love the idea of a prospective partner requesting past reports, but I won’t hand them out easily. And, frankly, most of our would-be partners don’t take the time to read all our past reports when offered anyways. That’s probably fine. They are hiring me to do this sort of work. And, if you can’t get to know us by reading some of our blog posts you probably won’t find us attractive once you dive into the meat of our present strategy, and more specific types of errors.
Finally, we do not distribute our annual report because we cover some strategies and situations at our companies that might help our competition or freak out our employees. One of the benefits of being a private company is that you do not HAVE TO disclose your financials to the SEC, let alone bear out your strategies to anyone and everyone. I want my business partners to understand how we expect to win, and I prefer my competitors to be held in the dark just a bit. Why burden our managers with extra stakeholders that have different motives?
So, in summary, we write our letter to equity partners in order to share our motives and strategies such that they can decide to stay or leave, which requires a delicate balance of resolution and disclosure.