Unearthing Companies with Uniquely Supportive Cultures with Aaron Wasserman, Partner at Third Period Capital
Aug 23, 2023
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In this episode, Aaron Wasserman, Partner at Third Period Capital, shares insights on analyzing company cultures and determining if they contribute to growth. He discusses his experience at Baron Capital, collaboration with Adam Grant, and his strategy of focusing on companies with exceptional cultures. They also explore the parallels between hockey and investing, the role of culture as a competitive advantage, and investing in global growth companies.
Third Period Capital focuses on investing in companies with exceptional cultures that support their competitive advantages and growth strategies.
Third Period evaluates company cultures by speaking with various stakeholders to assess consistent behaviors that align with the growth strategy and determine if the culture is supportive and additive to growth.
Third Period Capital employs a meticulous process to understand and evaluate company cultures by engaging in numerous conversations over many years with various individuals throughout a company's value chain.
Deep dives
Third Period Capital's Approach to Investment: Cultivating Unique Corporate Cultures
Third Period Capital, a long-only global growth firm, focuses on identifying and investing in companies with exceptional cultures that support their competitive advantages and growth strategies. They analyze businesses in sectors like consumer, healthcare, and technology. For example, they look for companies like Costco, Shopify, and Stairus that possess strong customer service and cooperative selling cultures, culture of innovation, and high reliability culture, respectively. Third Period evaluates company cultures by speaking with various stakeholders, including suppliers, customers, competitors, and past and current employees. Their goal is to assess consistent behaviors that align with the growth strategy and determine if the culture is supportive and additive to growth. They are willing to pay a premium for businesses that exhibit a distinct culture that aligns with their long-term growth potential. Third Period emphasizes holding companies for the long term and being patient through cyclical issues and challenges.
The Role of Culture in Generating Durable Competitive Advantages
Third Period Capital firmly believes that culture can be a durable competitive advantage for companies. They define supportive culture as culture that supports a company's competitive advantages and growth strategy, while unique culture stands out compared to competitors. They observe that cultures change more slowly than expected and often animate a company's growth for longer periods. They aim to identify businesses with distinctive cultures, such as West Pharmaceuticals with a mission-driven set of values, Stairis with a strong safety culture, and Constellation Software with a transformative acquisition-focused culture. Third Period evaluates cultures by building a holistic mosaic through conversations with stakeholders to understand consistent behaviors that provide a unique advantage. They believe that cultural advantages often outlast competitive pressures and drive long-term growth and performance.
Understanding and Evaluating Company Cultures
Third Period Capital employs a meticulous process to understand and evaluate company cultures. They recognize that information provided by CEOs can often be sales-oriented and not necessarily indicative of the true culture. Instead, they build a culture mosaic by engaging in numerous conversations over many years with various individuals throughout a company's value chain, including suppliers, customers, competitors, and both current and former employees. They aim to gather observations and insights on behaviors, values, and overarching organizational culture. By analyzing consistent behaviors, Third Period identifies distinct cultures that align with a company's growth strategy. They employ a set of proprietary questions to tease out valued behaviors and assess if the observed culture is supportive of growth. Third Period considers culture an essential investment consideration, but acknowledges that it is often misunderstood and underappreciated in the investment community.
Focus on Global Growth Opportunities and Building Conviction
Third Period Capital concentrates on global growth companies with unique cultures and competitive advantages that can compound capital over the long term. They target sectors like consumer, healthcare, and technology, with a belief that per capita GDP growth globally will drive demand in these industries. By investing in these growth areas, they seek to capture the compounding effect and longevity of these businesses. Third Period Capital values businesses with proven value propositions, stable unit economics, and global scalability. They look for evidence of the company's growth potential, and they conduct ongoing research to foster conviction in their investments. Despite market fluctuations and short-term hiccups, Third Period Capital stays committed to its investments, avoiding the temptation to trade or trim winning positions. They believe that the power of compounding and holding quality businesses for the long term outweighs short-term market fluctuations.
Third Period Capital's Vision for the Future
In the future, Third Period Capital plans to further develop relationships and collaborations with thought partners who can contribute to research and business development. They aim to lower fees as they raise assets and make their investment strategies more accessible and cost-effective. Additionally, they envision potentially converting the fund into a mutual fund structure, broadening access to a wider range of investors. Through these efforts, Third Period Capital aims to strengthen their product, increase accessibility, and offer a distinct investment approach centered on unique company cultures and compounding growth.
Today’s episode is another in our series of interviews with emerging investment managers where we discuss how to build an investment firm that can compound. My guest on this show is Aaron Wasserman, a Partner at Third Period Capital. After a long and successful tenure at Baron Capital, in 2019 Aaron started Third Period, a long-only, global growth firm based in Los Angeles. Aaron believes he has cultivated an edge in identifying and owning companies with exceptional cultures—and he has engaged Wharton Professor and best-selling author Adam Grant to help widen his competitive advantage.
In this discussion, we covered:
How to analyze company cultures and determine if they are additive to growth;
What Aaron learned from working with Ron Baron for many years;
What Adam Grant’s involvement brings to Third Period and to Aaron’s process;
An example of a prototypical “Aaron stock” and
The sectors that Aaron has chosen to focus on in this strategy
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of SNN or its affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
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