Playing to Win

You can’t be loved by your industry’s incumbents and be a disruptor at the same time

I spent some time with a pretty big asset manager a couple years ago. I’m not talking about the early career years when I was all eager and naive and just trying to prove to anyone who cared that I belonged. No, this was after I’d been battered and bruised in the AUM wars. After I’d had some success, some failure, and enough of both to know who I was.

This one was an interesting opportunity. This asset management giant called me about helping them to level-up their ETF business, although it was never really clear to me what exactly they were after. For my part, I desperately needed a distribution partner, and I needed some AUM behind me. I needed the AUM for the wonders that critical mass can do in an industry that is all about scale, and for the credibility* that comes with it.

*Yes, there are people in this industry who will measure your worth in AUM. Because they aren’t capable of assessing character or value on their own. If someone leads off with “what’s your AUM?” what they are really asking is whether you’ve been validated by people with more money and more ability to evaluate than they have.

So I am getting ready for the final big boss level meetings with this company, and I had a choice to make. Do I tell them what they want to hear, which will lock in the deal, or do I tell them what they need to hear?

Being the idiot that I am, I chose the latter.

I’ve long ago decided to be myself, and let the chips fall where they may. So I drank two-too-many coffees and went in there and explained to them that they were in a death spiral, that their wholesalers were losing their efficacy, that fees and margins would continue to collapse, that their portfolio managers were commodities, that allocation decisions were being centralized, and that they better come up with a cult-of-personality and a rallying cry fast if they wanted any chance of reversing their slow and steady descent to mediocrity.

Maybe I said it a little nicer than that. But just a little.

I didn’t get the deal.

It was my loss. And it was their loss too, if I’m being honest and clear-eyed about it.

Like a season of The Wire, everyone’s a tragic loser in this story.

You see, I wasn’t playing to just get the deal. What is the point of jumping from a small sinking ship to a larger one?

I was playing to win.

There are a lot of people in the finance industry who aren’t playing to win. They think they are, but the game they are trying to win is one of career ascension. A game of politics. A game of love-me. A game of being nice

A game of not wanting to upset their competitors, especially not the biggest ones. After all, they might have a job for me one day.

That’s not playing to win. They aren’t going for the kill. Good people, nice people, smart people. Good at what they do. Professionals. But the killer instinct? They don’t have it in them.

If you are, or ever hope to be, an innovator in your field. If you want to be a disruptor, in the truest sense of the word, then listen to me: You can’t be loved by your industry’s incumbents and be a disruptor at the same time.

You have to choose. Either you are playing to win, or you aren’t.

There was this one time, early in the days of Exponential ETFs, when I got invited to a Detroit Startup pitch competition. These were the peak days of Exponential ETFs. I was joined by Tyrone Ross, and we got to meet Jason Wenk, it was so much fun.

And then when I got to present the business to one of the VCs, I went through our rationale. I’m talking about outsourced capital markets services for independent asset managers. I’m talking about my reverse cap fund and index concentration. And she was horrified by my presentation. I shit you not: horrified.

“Where is the problem slide? Where is the solution slide? Where is the TAM?”

And I’m like, you want me to disrupt the entire finance industry but you can’t handle me disrupting the standard pitch deck formula?

Here is another lesson for young entrepreneurs: you think you want to raise money, any money, but you don’t. You want the right investors, the right money, and the right partners. Either find people who get you, or don’t even bother.

Bottom line is, she was playing one game. A game where a pitch deck is a book report and should be done the correct way. I was playing a different game. I was focused on clients and opportunity. She was playing to check off boxes.

I was playing to win.

“You know, Phil, we don’t bring in a fruit tray for just anyone”

That exact quote was said to me. We were sitting around a conference room table at one of the largest index companies in the world. A sad little tray of semi-rotten melon slices sat untouched in the middle of the table. My counterpart at the meeting proudly unwrapping that tray. I shouldn’t be so cynical, after all, they don’t do that for anyone.

I was trying to get an index license for my inverse-cap weighted fund idea. They were not having it. For one thing, who the fuck were we. We had one fund, with maybe 10-20 million in it at the time. Peanuts to them. For another, this idea encroached on their two biggest clients: one who locked down the factor index suite, and another who had equal weight. Each of those were huge, profitable franchises.

So my little idea, they had to kill it. But to soften the blow they brought out the fruit tray.

In what would become a running joke at Exponential, I was told that my idea was ruffling feathers in the industry. Yah, no shit! That’s the point!

The details of what happened next aren’t appropriate for public dissemination, but let’s just say this: I got the license. I got the deal. With gratitude to many involved. But to do so, I had to burn some boats.

I had to play to win.

Again, you can't disrupt an industry and be loved by its entrenched interests at the same time. Pick a side, or get a day job.

I’m putting something new together. I’ll have more details on this when I do. But let’s just say that I haven’t been this fired up in a decade. And I’ve got two cofounders that have me locked in. Every day is just a parade of can-do and optimism and us-against-the-world. I’m just so blessed and grateful for these guys. I can’t wait to share more about what we are doing.

Naval Ravikant has said that “startups don't die when they run out of cash, they die when the founders run out of energy. I think there is a lot of truth to that. But it’s not just energy. It is willingness to fight. To really fight. Willingness to be unloved - hated, even - if the situation calls for it. Willingness to disrupt, not in the sense that everyone will applaud you, but in the real sense. In the sense that costs.

To disrupt entrenched interests means to make enemies of them. Until they capitulate and try to buy us out, but they’ll be too late. So pour one out for our competitors, because they don’t even know we are coming for them.

We are playing to win.