19 October 2007

Lab Work, Career Beginnings and Entitlement

I was in Kona last week and the artist of the above print (Mike Field) took me out on his sailing canoe. Heck of a good time.

A Reader Asked...
...my question to you is what one book (or if that is too tough) what several books have had the most impact on your beliefs, thoughts, views, etc. I feel like I am in a significant transition point in my life where I have achieved a lot but still feel like I’m not sure where I’m heading

I Replied...
The book -- that's easy for me -- The Artist's Way by Julia Cameron -- I read the book (and did the program) the first summer that I spent in Boulder (2000).

Seven years later, every single thing that I wrote on my Top Ten list had come true. I thought that some of the items were a bit of a long shot as well. The interesting thing about that book (and the program) is that it is a tool to unlock whatever is lurking inside of us. It's a powerful program -- it seemed pretty goofy at the start but seeing it through changed my life.

FWIW, I would have described my life in 2000 EXACTLY as you laid out in your question.
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Lab Work
We have been playing in the lab this past week. I did four tests (bike lactate step with fuel; max aerobic run; resting metabolic rate; and a brick where I held AeT wattage for 80 minutes). So far, no ground breaking insights and I appear to be pretty normal.

Running the fuel test in tandem with the lactate test is very interesting (to me at least). In some athletes we are seeing material divergence between their lactate profile (AeT/FT) and their met-cart profile (AeT/VT1/FT). Often times the lactate test indicates that the athlete ought to be training more intensely than the fuel test. The fuel test has given us an insight into why using top end performance to determine endurance training zones is prone to error. We'd kill Alan if we used a 20 min max effort test to set his endurance zones on the bike -- he can really rip when there's plenty of glycogen available. I'm sure that he'll write more after we arm him with a bit more data. For what it's worth, this is where in-the-field experience is invaluable -- the testing provided us with a metabolic reason for him being so whipped all the time.

Given that nearly every athlete wants to know the pace/power/intensity at which their fat burning is maximized we're putting together a progressive test to determine that point for recreational athletes. My sister-in-law runs daily on her treadmill so she's the perfect candidate to test our protocol. In an up-coming letter I will share ideas on burning more fat, and storing less.

Visiting various labs and speaking with a range of PhDs, it is surprising to us that every lab (and just about every sports scientist) has a unique protocol for VO2 max testing. We've arrived at our own consensus and will be running it past a few personal contacts. A few more weeks and we will publish where we ended up. Seems that there is a fair amount of "art" in the testing science.

Drop mat "at" endurancecorner.com a line if you are interested in some testing.

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Career Beginnings
I read pmarca's blog from time-to-time and came across an interesting piece on where to work. Thinking back to my own path, it is excellent advice.

I stumbled into Private Equity in 1990 -- I was hand-trained by a founder of the British venture capital industry (Jon Moulton). I think that Jon would say that the article I linked up is reasonable -- the amount of cash that flows into all segments of the finance industry is unbelievable. Many of the players within the game believe that they actually deserve it, others stay quiet and earn their money below the radar. Jon comes out and says what many of us have been thinking for years.

Jon plays a game at which he is a world-class player -- it's fun to do things when you are better than most your competition. I think that he's the only person in the world that's built two leading private equity firms from scratch. He makes a lot of money but could make even more if he felt like pushing things. His business serves his desire to work with great people and play the game -- financially, he's had more than he needed for the last twenty years.

He knows a lot lot about money and I hope that he sits down and writes out his thoughts one day -- that's a book I'd love to help write. We have access to Warren Buffet's annual reports but there's a ton of great stuff that's scattered amongst the memories of Jon's employees, partners and managers.

Here's a bit on how I met him... against the advice of the senior partner that interviewed me, Jon decided to hire me straight out of university. These days, nobody really gets that chance -- the industry players are, for the most part, established players and it is VERY tough to get a seat at the golden table.

Back in 1990, I was cheap, graduated with first-class honors (Econ/Finance) and Jon knew my Dad. The first two points were a key part of his buying decision -- Jon likes to hire smart people. He figures that if you can score well at a good school then you should be "useful for something". Knowing my Dad limited his downside because he could recoup his investment via satire.

From the early days, I was fortunate in that he found most of my flaws entertaining (there were many). Jon likes to be entertained. His wit is so fast that it took me six months until I was able to understand what he was saying. His partners used to translate for me and, even today, I probably miss many of his jokes. He's operating at a pretty high level.

My starting pay was less than the cleaners and my desk was the only one in the firm that Jon could see from his own. That made for interesting times as he would lean forward and shout "Byrn! Heel!" when he had a task for me. I'd drop everything and come running. Whenever I was given a task by Jon, I'd work non-stop until it was done. One management team nicknamed me "the rottweiler", I had a lot to learn about people skills.

Jon's done more for diversity in the financial services industry than any other person I've met in my career -- I'm surprised that no one ever talks about that. Hand ups, rather than handouts. To see this, you would need to look to the man's actions rather than his words -- Jon would probably tell you that he only hires the best people and doesn't give a stuff about backgrounds. That's true but doesn't explain the texture of most of his competitors.

I worked in London at a time when capital under management was benefiting from rapid portfolio growth and a shift in asset allocation. We knew that the industry fundamentals were good but we failed to grasp just how fast our world was changing. We were lucky to have some very bright Harvard MBAs on the team that provided strategic background -- Jon was at his best adding value to the firm by doing good deals, rather than strategic oversight.

The American players were the Big Boys (with their private jets and stretch limos) but we held our own in terms of net returns. The concepts of portfolio management and net returns were in their infancy. I was one of the first people to build a full-fledged model of a private equity fund, Jon's idea, not mine! Because our returns were great, we were in a position to educate our investors without risking our P&L, rare in financial services!

Another great idea Jon had was to calculate the equity IRR from doing a buy-out of the FTSE index and rolling all interest (after dividends) for five years. He loved it when my calculation (looking back five years) showed an equity IRR of 30% per annum. This was 1992 and the parallels to today's hedge fund industry are clear -- making money from leverage rather than sound investment judgment.

I worked internationally, first in London then in Hong Kong. When I'd plateaued in terms of personal development, I headed out on my own and have been involved in founding start-ups since then (property investment, property development, consulting, human performance, tourism).

Operations aren't my forte. As you might guess from reading my stuff -- what I do best is take a range of ideas; assemble them in the language of finance; and structure a deal/company so that good people get involved in supporting the plan. I do the easy bit -- the people that execute daily do the tough stuff.

As I emphasize to Alan and Mat, make the most of your learning opportunities. Boulder, 2007, human performance, alongside an experienced coach/investor/athlete. I didn't realize how unique my situation was until years after working for Jon.

Similar to my piece on the future of the coaching industry; I have a piece in my head on the future of Human Performance consulting. I'll write that up because there is an opportunity to create a world-class business in Boulder and I need help with the day-to-day.

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Health Warning
I'm being pretty direct below and when I re-read it... I sound a little negative on "living the dream". I suppose that is because most of the elites that I meet are a bit clueless on what they are heading for as well as the long term implications of their decisions. Still, poverty isn't fatal and athletics is a lot of fun.

My decision to seek to maximize my athletic potential in 2000 was an outstanding life decision -- in a sense, I saved my life. However, the financial benefits that one forgoes in following an athletic path are material. Nobody (coaches, athletes, race directors) goes into triathlon for the money.

If you think that you are too "poor" to afford health insurance then I recommend that you reconsider. I have many friends in our sport that have sustained medical bills in excess of $10,000 within the last five years. The highest that I know about is more than $100,000. If something happens to you then it's going to be pretty major -- a high deductible insurance policy costs very little relative to the financial impact of most cycling accidents (Alan/Mat pay ~$150 per month for a PPO plan that includes dental).

Taking $2,500 or $5,000 on the chin is nothing compared to a six figure bill landing in your lap. For my family, I self-insure the small to moderate stuff with a gold standard plan that backs me up for anything major.

When deciding what constitutes major; consider it as a percentage of your personal Net Asset Value.

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Entitlement In Sports

A listener observed:

It continues to amaze me how difficult it is to be a pro triathlete and the sacrifices you have to make. Perhaps in the future you could discuss what needs to change in our sport in order for elites to make a fair wage?

So many ideas come to my head when I read the above observation. Please know that I am speaking generally rather than replying directly to you. Your question touches on the fundamental issue that many people have with entitlement.

What do we truly deserve? Start here for ideas on that!

Fair wages – elite athletes are volunteers and no one has an inherent ‘right’ to train all day in the sun // I recommend a trip through rural China and India for anyone that believes otherwise. Elites are free at any time to get themselves a job in the traditional workforce – most “pros” in all sports have at least a part-time “real” job.

We all are susceptible to a feeling of entitlement in our lives – I feel it in myself. An early dose of random misfortune can often be a blessing.

The national associations (like New Zealand) that make it “hard” on their elites are doing them (and their taxpayers) a favour. If an athlete’s prospects are poor then we certainly don’t want to make it easier for them to hang on – a trip back to the traditional workforce can be educational and do wonders to motivate those on the edge.

If you want to make a living as a world-class athlete then you’d better be a world-class athlete. Most elites aren’t world-class, they are proficient and hard working.

Making It – you don’t “make it” as an elite triathlete – with a few 1-in-1,000 exceptions you make a bit of money for a few years then you retire (often with a beat up body and a smoked immune system). Winning a few races isn’t like making partner in a law firm – you will be heading back into the workforce (probably with short notice and before you want).

For most elites (and fast AGers), fast racing is great marketing, rather than income earning. The athletic "class" that make the greatest return from their racing are the “athlete coaches” that place consistently in their divisions. They represent achievable success in their local markets and share their experience with increasing life satisfaction from racing. As a "class", elite triathletes make nothing. My lifetime prize money is equivalent to two months current expenses (maybe less, I'm probably overestimating).

If the goal is to make a decent living then channeling the energy spent on athletic excellence into just about any other field will result in superior financial returns.

However, it is the challenges that make the pay-off so rewarding – whether competing for money, a Kona slot or simply to finish. Most of us would do it for free – actually most of us pay to do it!

Rewards – as a society, we place a tremendous value on physical beauty and athletic power. We have been conditioned for our entire lives than a lean, fit body is the ultimate achievement. As I age, I take comfort in having a better body in my 30s than I did in my 20s. I expect that the “reward” that many elites receive stems from the way we perceive an elite athlete.

Change – I’m not sure than anything needs to change in the sport of triathlon. If the athletes were to organize themselves and take charge of race promotion then they might be able to capture a larger share of the sport’s revenues. However, I see this as unlikely for a few reasons:

***lack of skills // as a class, elites are great athletes, not great businessfolk. The federations and race organizations have a massive edge and strong financial incentives to maintain the status quo. As a practical point, even if an athlete had the skills – why does it make sense to put a lot of effort into helping a group of second tier pros make more money? Pretty low return for your personal charity investment and, I expect, that you would get a lot more bang for your buck in other fields.

As an aside, my personal experience with Bradventures, NA Sports and HFP Racing is that they get money to athletes that support their company vision and add value to their businesses. Graham Fraser has done a tremendous amount for elites (as well as others) but we don’t hear a lot about it. He’s probably learned that critics exist to criticize.

Many young pros focus on explaining why they should be given money – a far better proposition is to demonstrate how you can add value to the company by being an ambassador of their brand mission. I had ten years of investment experience when I came to triathlon and it took me years to figure this out. One thing I did figure out was that using my skills to beg for free bike shorts was a low return activity.

***the events are bigger than the athletes // There are very few athletes that can benefit a race director by their presence.

Life Lessons – the lessons that we learn with a personal quest for our maximum potential are highly valuable and the training is a lot of fun. At some stage of our lives, I think that everyone should spend a couple of years trying to be their absolute best at something. The lessons are independent of outcome.

Remember that sport (and a meaningful life) is challenging – that’s the point!

As Ms Rand noted... China, Russia and others have tried a system that tried to be fair to everyone -- it had all the wrong incentives.

More next week,

gordo

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