Investing in companies that have flaws

The checklist’s perfect company is tidy, sensible and probably doomed to be average.

Outliers are rude. Their exceptional strength tends to arrive dragging something awkward behind it: rough operations, a polarising idea, a founder who sees what others miss and occasionally forgets other humans have calendars.

Hiring committees hate this. Six people can approve the candidate who scores seven out of ten everywhere. The person who is astonishing at the one thing the role exists to do—and patchy at two peripheral skills—creates a debate. Safety wins; distinction receives feedback about roundedness.

Creative work gets the same sanding. Every memorable choice is also somebody’s objection, so review removes objection until the idea has the aerodynamic profile of porridge.

Ask whether the flaw destroys the reason for the bet, rather than merely whether a flaw exists. Weak financial controls can kill a company. A strange sales ritual might be repairable. Poor judgement in the central task matters; a missing peripheral skill may be covered by somebody else.

Define the exceptional strength required. Verify it. Separate fatal weaknesses from survivable ugliness. Then manage the latter without polishing away the former. Absence of flaws is comforting because it fits a scorecard. Presence of unusual value is what anyone was supposed to be buying.

Behavioural principles

Behavioural ideas at play in this post

Short, plain-English explanations of the principles behind this post, with links to related books and examples in the archive.