A handful of core principles have guided our thinking in the development of this program. They are as follows:
Circle of Competence
This mental model was developed by Warren Buffett and Charlie Munger to help describe their selection criteria for companies to invest in. We have learned at 365 Holdings that our Circle of Competence is in acquiring and growing eCommerce Brands specifically. EIRs may choose to pursue eCommerce as their acquisition search focus or they may pursue other markets. We’re fine with either - the training that EIRs receive will be a holistic skill set and can apply to many businesses. What’s most important is that the ETA search is focused on the EIRs Circle of Competence! We will spend time defining and refining this criteria with our EIRs. Your Circle of Competence can grow over time but it is critical that any new business venture fits into your current Circle of Competence when you begin it!
“It’s not what you think you know. It’s what you know you know.”
This framework was developed by Jim Collins in his book Good to Great. We layer this concept on top of the Circle of Competence to help further refine ideal acquisitions. The Hedgehog concept insists that a company focus on the intersection of the following three criteria:
- What are you passionate about?
- What can you be the best in the world at?
- What drives your economic engine?
Applying this methodology to 365 Holdings we see the Hedgehog Concept at work:
- Passion - Building the 365 team and being the best second home for eCommerce Brands
- Best in the World - Growing eCommerce Brands with Digital Marketing and Operational Excellence
- Economic Engine - Our 365 Flywheel
As an EIR we will work with you to refine your criteria in answering these questions.
We believe you can divide small businesses into two categories: lifestyle businesses and platforms. The focus of our EIRs is to find platform businesses. There is nothing wrong with owning and operating a lifestyle business; it simply isn’t the focus of this program. For example, we view 365 Holdings itself as a platform business, and the brands that we own are our lines of business. A few attributes of platform businesses, as we would describe them, include:
- Multiple Lines of Business - the business has (or can develop) multiple product lines, streams of revenue, profit centers, locations, sales channels, etc.
- M&A - the business has the ability to grow strategically through acquisition.
- Management Team - the business can reach a scale to be run by functional department heads such that the owner/operator can eventually take a month long vacation and the business will continue to function.
- Durably Scalable - the business must have a fundamentally sound reason for existing a path to continued profitable operations and growth for decades to come.
Investment Thesis Development
Internally we use investment memos to document our acquisitions. In our memo structure we have a variety of qualitative and quantitative criteria but the memo ends with a seven question checklist. The checklist essentially ensures that the acquisition fits our Hedgehog Concept. EIRs will be expected to develop their own robust thesis around their search criteria that incorporates the principles of Circle of Competence, Hedgehog Concepts, and Platform Focus. The EIRs’ search will then focus on sourcing, underwriting, and qualifying specific acquisition opportunities based on their thesis.
To run a company you must be a leader. Full stop - no excuses. If you can’t lead people you can’t lead a company. We are looking for EIRs who are natural born leaders. We have an internal leadership development program and we expect that our EIRs will be head of the class in that program.