如创业的投资和如投资的创业

Investing Like Founding, Founding Like Investing

> By Colin Huang · 2016-04-05 · [Original link](https://mp.weixin.qq.com/s/sCS7iCY4PoaRp9wZo2DRrA) (Chinese)
> Our translation from the Chinese original.

Recently I've been in touch with some institutional investors and have slowly come to understand something of the procedure of institutional investment, and I feel that sometimes the angles of investors and founders really aren't quite the same. In my earlier ventures I never raised money, and when I did secondary-market investing I never thought carefully about this difference either. On the one hand I'm gradually understanding the difference between the institutional investor's angle and the founder's, which is new and unfamiliar to me; on the other hand, as I recall my own thinking when I did secondary-market investing before, it seems to be consistent with founding a company, without much difference. Looking at it now, perhaps the education I received in investing and in running a business is relatively niche, but judging by the time span of the process, it is again effective with high probability. So I want to record some of my earlier thinking on investing and my thinking on founding companies. Comparing them might be a somewhat interesting thing.

I. Investing like founding a company

My understanding of Buffett saying that buying a stock is buying part of the company is that you should look for good businesses and good partners with a long-term holding mindset. This is actually very like founding a company. On the one hand you have to pay attention to the business model, choose the right business model (not every model works), and spend a great deal of time studying the details of this business model. On the other hand you have to pick good "partners": when investing, you should treat the founder and CEO as your own future partners, and ask whether you're willing to do things together with them over the long term. If this founder or CEO's character or culture makes long-term cooperation feel uncomfortable to you, then it's best not to buy on day one. This is the same as in a startup: if you feel a person isn't suited to the team in the long run but is useful for a while, bringing in such a colleague often leaves you regretting it, and if this unsuitable person is a partner, then it's not just regret, it's regret too late to help.

Besides caring about a good business and a good team, investing also requires caring about whether it's a good price. This point seems to differ from founding a company, but thinking it over carefully it's actually the same again. Buffett mentions in many places that Charlie Munger made his ape evolve into a man; it was Charlie Munger who made Buffett realize he should buy good companies at a reasonable price, rather than spend time picking up cigarette butts (companies that are cheap, with some residual value, but often not so good). This is even easier to appreciate in founding a company: if a business is especially easy to do and doesn't require paying a big price, it's often not a good business that brings in a lot of cash flow over the long term. Good decisions are often hard and require paying a painful price. A good company should put effort into solving/overcoming the problems that are right and hard, rather than picking up a big pile of sesame seeds everywhere (the mindset of picking up sesame seeds everywhere often doesn't even get the sesame seeds, and this is a completely different matter from accumulating small wins into a big win). Another point in investing related to price is seeing whether this deal in loss is bearable overall. Seen from the angle of founding a company this is more concrete: when you put yourself into an undertaking, you must see whether it will kill you; staying alive is the first priority of a startup. At the same time, you often have to evaluate it from another angle as well: can you win, and do you have enough strength to put in to win.

II. Founding a company like investing

As the saying goes, a man fears entering the wrong trade, a woman fears marrying the wrong man. Just as investing pays special attention to the business model, in founding a company the choice of industry and business model itself also often determines a large part of the result. That is to say, you must spend a great deal of time studying what the right thing is, and only then think about how to do the thing right. Advancing step by step in the right direction is far better than running wildly in a wrong direction. Buffett says he has seen many ordinary people make quite a lot of money in the financial industry, and has also seen quite a few very smart, excellent people struggle bitterly in bad industries. On the road of founding a company, a lot of the time it's also like investing: choice matters more than effort. Advancing on the right road, even if a bit slowly, is like compounding in investing: a 20% annual return for 20 years in a row is very impressive, far higher in return than rising 100% this year and falling 50% next year.

In a certain conversation with MBA students, Buffett and Bill Gates asked the students in the audience a question, roughly: if you treat each of your classmates as a company, and you must invest all the money you currently have in one "him", for 5%, which one would you choose? Often you won't choose the smartest or the most capable; more often you'll choose the most trustworthy. This metaphor is especially apt for choosing partners in a startup: often what we want is a trustworthy long-term partner, not someone who seems very capable but of whom you never know whether he'll stab you in the back.

When Buffett talks about investment targets, he often mentions a concept: the moat of a business (moats). If you treat the various decisions in the process of founding a company as investment decisions, then we have to distinguish which of the things we get in exchange for our time and money are assets (asset) and which are expenses (cost). Those that, as time passes, help deepen the moat of the business are often "assets"; those that are worse for you the longer it goes on can be seen as expenses. In acquiring assets, wrongful waste actually doesn't really happen; at most you just paid a bit too much. But waste on expenses is very hateful, and often has side effects [Translator's note: the original writes 负作用, apparently a slip for 副作用, "side effects"]. In the process of founding a company there is a special class of asset, which is people united under a certain culture, and there is also a class of expense, which is the cost of buying labor or skills. Distinguishing and converting these two is a very interesting thing, and also a thing with especially high ROI. If expenses all turned into appreciating assets, I expect our CFO and investors would be laughing too hard to sleep. But what's interesting is that a lot of the time when investing, distinguishing such a major difference is again often careless and given far too little weight.

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