At El Cap, we are generalists. This means neither of us are focused exclusively on any one industry or sector when sourcing new investments. The challenge we face as generalists is a steep learning curve when researching an industry for the first time. The benefits are that we can approach this research with a true "beginner's mind" and build "range" as we look at a diverse set of opportunities.
"Beginner's mind" is a Buddhist term that refers to an attitude of openness, eagerness, and lack of preconceptions when learning or studying a new topic. "Range" is a term popularized by David Epstein's latest book and refers to the breadth of our knowledge and experience base.
In Epstein's book, he highlights the value of being a generalist rather than a lifelong or career-long specialist. Positing that success in many fields happens because of people's knowledge and experience outside their area of focus, not in spite of it.
Why is range important for investors? The proliferation of cloud-based services is breaking down silos of expertise that have long existed between industries. No longer can enterprise software companies ignore the consumer landscape. No longer can commercial real estate holders ignore how DTC e-commerce brands are impacting the value of physical store-fronts. No longer can healthcare companies ignore the mountains of data being captured by personal hardware devices. As change accelerates across all industries, the best investors and operators will be those who draw learnings from areas previously believed to be unrelated. This interconnection of traditionally disparate information is a unique opportunity for those who recognize the shift.
If a broad aperture is vital to success, how do we go about refocusing? A person's baseline range is a byproduct of innate curiosity, life experience, and professional circumstances. And while a wide starting base is helpful, learning how to build range is more important than the base you start with. Anyone can expand their range, but it requires planning and effort, and there are no shortcuts. Juggling both the learning needed to expand range and typical work responsibilities can be a challenge. If there isn't time on your schedule explicitly allocated to building range, it’s unlikely to get done. At El Cap, we use a system called "Level Learning" to manage this balance. Level Learning separates our reading and learning into three levels based on relevance to our immediate workflow. It allows us to put blocks of time on our schedule and keep track of our progress in each bucket. See a breakout of each learning level below:
Level 1 Learning: data room materials, models, pitch decks, legal documents, emails, transcripts, etc. Learning required to operate our business as investors in the immediate term. Pacing: immediate
Level 2 Learning: blog posts, white papers, investor updates, etc. Learning that might not be pertinent to a deal we are looking at, but is a topic we are excited to explore. Pacing: eight to ten per week
Level 3 Learning: books, long-form studies, online courses, etc. Learning that doesn't directly relate to work, but undoubtedly expands range. Pacing: one per week
We have a database where we list our current and planned reading. This helps us remain accountable and easily give/receive feedback on what we're adding to our knowledge base. Our reading database is viewable here. Let us know if you have any suggestions or comments.