Lunchtime blog post! This means it will hopefully be short and sweet.

There are a lot of problems with various forms of venture capital, private equity, etc. One of the problems is that there are so many of this kind of company that there is no one single problem! There are plenty of venture capital and private equity firms that are trying to do good work. And there are plenty that are vultures pecking at the corpses of once-great organizations trying to get the last ounce of marrow from the bones.

This post isn’t about ragging on some pattern I don’t like. I’m trying to define a problem that I think is built into modern funding models — it’s not meant to be judgmental, simply a statement of fact. Assuming it is a fact. You tell me. But by writing it down I hope to think of ways to avoid this.

Passion Doesn’t Scale

Several years back I worked downtown. Working downtown in a decent-sized city is great for two reasons: public transit and lunch options.

One of our favorites was a barbecue joint who had AMAZING brisket. So amazing that there was always a line, and they would sometimes run out before lunch. This restaurant was successful enough that it caught the attention of a bunch of investors and, eventually they got a big payday. Part of that payday was expansion — they needed to open X number of restaurants in Y amount of years in order to receive a payout bonus of Z.

So these people opened restaurants. And the restaurants were decent, but they weren’t great. They definitely weren’t as good as that original place. Not only that, but the original itself went downhill because the founders, who previously had focused all their attention on that one restaurant, now had their attention divided. They weren’t there on a day-to-day basis, and although they surely found good people to run all these restaurants the people they found weren’t, well, them. They had felt SO passionate about brisket that they gambled a huge amount to open a restaurant where they could make amazing brisket.

No matter how good the other people they hired were, they weren’t going to have that same motivation. They weren’t going to have that same passion.

The reason people invest in restaurants is because they want a return on investment, and that return doesn’t happen from one restaurant continuing to do what made it successful (most of the time). The investment requires scale — it requires more restaurants.

And money can buy new buildings, and smokers, and beef, and staff, but what it cannot buy is more people with the same level of passion as the original founders.

If the product you’re selling isn’t particularly complicated that’s not a concern. I mean, McDonald’s is successful for a reason. But if it is a product that requires some expertise, maybe even some artistry, then it’s going to be different. I mean, just watch Jiro Dreams of Sushi, and remember that Jiro didn’t trust HIS SON to make some of the more complicated dishes until he worked there for literal decades.

And we all suffer for it

Here’s the downside to this for the average person. We take one restaurant that was great, and we turn it into ten average restaurants. They aren’t bad! A bad restaurant would go out of business. Instead they are average to above-average.

Those average restaurants have the advantage of capital, and so they push out smaller restaurants that don’t have capital. Maybe they push out restaurants just like what they used to be — one great restaurant, run by people who are passionate.

You can see where this is going. Instead of a landscape of restaurants of varying qualities, everything gets smoothed out. Instead of some great restaurants and some terrible we have lots and lots of similar, average restaurants.

Is that bad? I don’t know. I could be romanticizing a past that never really existed (as people are wont to do). I’m not sure.

I do know that having someone who is passionate about a what a place does makes a big difference. A while back I worked at a theater chain, and I knew a lot of the GMs and a lot of them were quite passionate about, you know, the cinema! The great American art form!

I still go to movies a lot, to lots of different theaters, and it’s so easy to tell the difference between a theater where someone loves the cinema and one where somebody doesn’t.

I think you can probably tell the same about restaurants. And furniture shops. And flooring stores.

Could you scale passion?

I think it would be so interesting to look at an organization that, when they’re planning to scale, doesn’t look at whether they have the money, or the land, or the equipment. They start with the leader. Have they found or created leaders with passion equal to the original founders?

I think this happens in some restaurants, where chefs make their way up and they only open a new restaurant when they have someone who has shown sufficient skill and passion to make it worth it — but these are typically very high end experiences.

For our example of the BBQ place, how long would it have taken to open a second and third and fourth store if they didn’t open them until they had someone they KNEW would do as good a job as they did to lead it?

I think you CAN scale passion. BUT. I think it scales, way, way, way slower than everything else. So it’s possible, but not on the timeline most capital firms would be satisfied with.