Using experts as an investment strategy
May 28
I have now made twenty investments in small companies or start ups. The aspect that the successful enterprises seem to share is that they have management teams with real expertise in field they are operating in.
There are a few golden rules I use when it comes to investing. And these rules have been learnt at great cost as they inevitably arose from analysing a failure. One of these rules is the use of Industry experts.
I have a good network which spans many fields. Before I am about to invest in an area, as a sanity check, I will ask someone with relevant expertise in a field about that business area. This has proved to be a very useful tactic.
Example 1 - I was impressed by a business which was in the area of film production. The management team were very strong and had been at the sharp end of production for a number of years. The business seemed to be worth backing. As I knew nothing of the business area, I asked a good friend of mine who is an expert in this field to give me his opinion; it was revealing. He was able to show me why this model simply could not return a profit. Needless to say, I declined to invest. This ten minute conversation saved me a lot of money and it is worth getting this sanity check.
Example 2 - I was about to make an investment in a company which supplies vegetarian condoms to the NHS and other sexual health products. I was impressed with the management team and the business plan. Sadly, I did not have any expertise in this particular area, nor did any of my friends (we live a sheltered life!) As part of my research, I then went to a sexual health clinic as a ‘patient’ to understand how I would be offered the company products. This was a fantastic way to spend 30 minutes. Not only did I understand the business model straight away, I was able to come up with some small suggestions in how the business could increase its presence. I did invest in the business which is listed on PLUS. www.sexualhealthgroup.com and I am very happy with my decision to invest.(note: THIS IS NOT AN INVITATION TO INVEST IN THIS BUSINESS)
Example 3 - As a final illustration, I invested in a café chain, (Amano) a couple of years ago. The USP of the business was that it was open all day and had a different offering and setting throughout the day. Not having the expertise in this area, my due diligence included a wonderful day and a half of sitting in the café reading books all day to see this offering first hand and to see it on a Saturday. I was convinced by the end of this that it was a good investment to make – time will tell if I am right but I am very happy so far.
So my point to investors is to always seek out expertise and if you do not have access to it – do your own field work.
Field work as I have demonstrated above is great fun!!!
Technorati Tags: investments, Industry experts, sexual health products
Hi and welcome to my blog. 
May 29 at 15:56
While I generally agree with you I do fear there is also a risk to asking experts.
Innovation can often come from an outside doing something no “expert” would do, because the expert would know “better”.
Apparently one expert once said:
“Groups with Guitars on their way out”
when explaining why he passed on signing up the BEATLES.
Experts can be wrong too.
May 30 at 11:24
I aways remember the saying that “Whist The Titanic was built by professionals, it is reassuring to know that the Arc was built by Amateurs”
My point though is that you should demonstrate that you understand how things are done at the moment - and then explain why you are doing away with it. Too many people lack basic understanding of what they are trying to change!
Jul 01 at 11:53
[…] his recent post Using experts as an investment strategy Permjot Valia wrote: I was impressed by a business which was in the area of film production. The […]