Hiring stakeholders

Every business has stakeholders. Each entity in “the supply chain” is a stakeholder. There are supplier stakeholders: credit card companies deciding who or not to service. There are customer stakeholders: voting with their feet. There are government stakeholders: adjusting the dials of the economic system as if it were an aquarium.

There are also employees as stakeholders.

“I think of Masterclass, I think of Coda. I think of a company that we just invested in. They’re very clear and upfront about their culture and the process. And I think that A, attracts people who are excited about that type of culture and B, by the time that somebody has actually gone through the process, it’s very clear to them what working in the company is like.” – Roseanne Wincek, Invest Like the Best, August 2021

The LTV/CAC idea applies to all stakeholders. There are many ways to lower the CAC, and it’s one of the more interesting business questions because the lower the CAC the better the business model.

But even a CAC of one doesn’t work if the LTV is zero. The most important part then is getting the right stakeholders, and the best way to do this is clarity. We are the kind of people who do this sort of work.

This isn’t easy. It’s not like a business can say: this is our business model, because alpha erodes. And, it’s not just competitor stakeholders that affect how an organization runs. Any stakeholder can change the rules. Landlords raise rents. Suppliers vertically integrate. Life changes!

Zappos once ran a campaign with a CAC of $18,500. That was inefficient. But a company who does more convincing that clarifying will have the same results: a lot invested and little to show. For instance, Ottawa Canada is a phenomenally good place to built a software company?

“If I hire someone through this very intricate hiring process that we have, there’s an understanding the chance of us still working together in ten years is really high. It’s a commitment from both sides. The company needs to be worth working for in ten years, but because of that, we can have a very different relationship than in a place where the expected tenure is eighteen months.” Tobi Lütke, The Tim Ferriss podcast, June 2020

Shopify filters employees through an “intricate hiring process.” Investment managers filter limited partners through ominous letters. Brands filter customers through advertising.

Maybe flexibility is the best way to think about stakeholders. How much do your stakeholder restrict your range of motion, and is there a way to increase ones flexibility?


Erik Jorgenson calls analogies our mental ‘sporks’. Brilliant!. The credit card companies were top of mind because the OnlyFan payment situation was news around the same time as the episode. Visa and MasterCard have stakeholders too. Sometimes it’s situations like this that provide opportunity for a business. If someone won’t “do X”, that’s a smaller market and more of a chance to avoid alpha erosion. Lastly; CAC, alpha erosion, and stakeholders are all on the list of my favorite ideas.

Playing telephone with Bill Miller

Bill Miller spoke with Barry Ritholtz about active management and the importance of stakeholders.

When Miller departed from Legg Mason and then bought out the residual partners, he didn’t take any of the institutional clients.

“We brought the mutual funds along but I did not bring the institutional business along. We have some separate accounts but we don’t really take institutional money, not that we won’t take it, but we aren’t actively trying to grow it. We are only interested in having clients that understand you’re going to get volatility. We try to monetize the volatility. “

Part-of-the-reason institutions are more difficult to work with is the people. Not only investment committees, but investment committee boards. Not who Miller talks to, but who they talk to.

Around the same time as the Miller interview with Ritholtz, Hannah Fry spoke with Shane Parrish about the algorithms in our lives. Counting leads to coding and our interaction with algorithms, automations, and augmentations is accelerating. One approach (often wrong) is to educate people. Tell someone the number of calories in a Starbucks drink and they don’t opt for the smaller size.

Fry highlights this. It’s not realistic to expect that an outsider has the time, talent, and tenacity to interrogate a source code. They are numbing numbers. If something is too hard to understand, often instantaneously, then it may as well not exist.

The most ubiquitous parts of life are complex. This was a good book about the iPhone but I don’t remember much other than it truly is a global supply system that makes the device in my pocket work. Mix in some YouTube videos about cellular networks (it’s ‘cell’ as in which hexagon from our tessellation map is this person in?) and relearning what the UV spectrum is and I kinda-sorta-get it. There are videos too about repairing a screen. A layperson can do that, but jailbreaking or writing apps? How much does, or should, one person know?

Back to Mr. Miller. He’s not explaining the physical world (Mediocristan), a mostly stable place where the UV spectrum has held relatively constant for hundreds of years. He’s operating in the social world (Extremistan), a mostly unstable place, and it is hard to communicate there.

When asked what he wished he knew when he started, Miller said:

“The thing that I am constantly realizing is that the world, the economy, and the markets are so much more complicated than you have any idea. Having dogmatic views and pontificating about the world as this way or that is a complete waste of time because nobody has any idea about what’s going to happen in the future.”

Listen to Ted Seides’s podcast and you’ll hear that investment committees get this. Institutions employ smart, thoughtful, well-rounded people. However, it’s the next level when the alignment of communication, incentives, and priorities breaks down. It’s how the game of telephone works. Someone can read and watch and kinda-get-it. That same person cannot pass it along.

The alignment of stakeholders is why investment letters (and to another degree, podcasts) are so important. It’s a filter. If someone can read a letter, consider the ideas, and still wants to invest then that person gets it. It’s reading the source code. It’s succeeding at the game of telephone. It’s communicating well.

Your work with stakeholders depends on communication and your communication depends on how clearly you see the world. In the latest pay-what-you-want piece we look at advice from Tyler Cowen and my grandmother. The gist? If you see the world as you wish and not as it is, you’re in for a rude awakening. Get it here