August 25, 2026
Investing is a highly introspective process. I have learned a tremendous amount about myself through investing. In fact, I think investing (and everything that goes with it) probably makes up 30-40% of who I am today. One of CL1's core beliefs in investing and business is the primacy of HOW over WHAT.
It is the HOW that separates people, cultures, and organizations.
For example, it is often not necessarily WHAT a specific culture looks like in all its small mechanisms and details. Good management can often get the WHAT roughly right. Rather, the important thing is HOW strongly a successful culture is reinforced, and in turn HOW deeply it is "lived" by its constituents. The best cultures are those that have radical buy-in. It matters little if you tout customer obsession without reinforcing this behavior across the organization with tangible mechanisms.
Likewise, it is not always WHAT a CEO does that is a true, underlying driver of good outcomes, but rather HOW they make their decisions (by building strong teams, by listening, by establishing robust feedback loops, and so on). Most successful managers I've come across get to the right answer because of the way they begin answering the question. Naturally, the WHAT matters in the end. A CEO, like an investor, is fundamentally paid for being right. The issue, of course, is that being right tends to require having the right process. The HOW is the input, the WHAT is the output.
Investing is a process. It is crucial to separate the process from the outcome. Correct reasoning might still end up in a poor outcome (that's what risk is, in a sense). As investors, our process is our product. Our goal is to constantly refine it, iterate on it, and continue building it into something that can, on average, produce good outcomes and avoid bad ones.
Lincoln defended General Grant's alcoholism, saying "I can't spare this man; he fights." I first encountered this anecdote through Drucker, where he cites Lincoln asking for the brand of whiskey Grant drinks to send to his other commanders, but from what I gather this part of the story isn't true. While most will argue that this highlights the primacy of the WHAT (Lincoln only cared about Grant's ability to win battles), the HOW is equally important. Grant excelled in strategy, operations, and military logistics.
Other than the deal we are closing currently, there has been only one business I have truly wanted to be a part of. It was a small, two vet clinic operation with an excellent entrepreneur. The founder was not an operational genius. He grew up in a small town in Kazakhstan and got his degree in a second-tier city. He did not have much business experience before his existing venture. His CV would likely have looked much like the CVs of other vets you might hire at a large clinic. Simply put, he was unimpressive on paper, but he really understood the HOW. He intuitively understood what he should obsessively be solving his business around: vet quality. Any hypothetical vet practice can find a good location, buy the right equipment, and build a nice, clean clinic. Few could build a truly good mousetrap for talent. This entrepreneur truly loved his business. He told us that his son was born the year he opened (a sign, so to speak). He also explained to us that he viewed himself and his success in life through the lens of his company's achievements. Other clinics had inferior talent, but they had these shortcomings primarily because they lacked the right model and the right thinking.
Another company in the UK told me stories about how their sales team would constantly arrive in the middle of the night at a customer's location to fix tech issues (they were an IT VAR) when a customer reached out. Former employees later confirmed this. Other competitors I looked at did not have such extreme service commitment. How come? The founder of this business – a college dropout – began the business with a small initial investment, driven by the desire to create a new culture. He wanted to build a place where employees actually enjoyed coming in every day. The offices of this business do not have separate offices for management – everyone sits in open-plan spaces (the offices have meeting rooms). Employees are encouraged to publicly praise one another. Vacation trips are constantly awarded to top performers. Leaders are almost always promoted from within. There are mechanisms and committees in place to constantly reinforce the founder's initial principles of having fun and building a community. Employees in turn go to war for this business. The company has built itself into a behemoth in the VAR space and likely has a bright future ahead of it. Focusing on the WHAT (good financial results) would completely miss the substantially more important (and valuable) element of the story – HOW the business is able to achieve what it has.
We seek to learn, above all, why and how a business is able to excel and win. The WHAT is a moving target. It is not so much the fact that Mercado Libre has a structural advantage in logistics as much as HOW it built this advantage, as this in turn is likely the answer to whether it is able to continue innovating and adapting in the face of growing competition. Kaspi succeeded, among other reasons, precisely because of the way they went about building their business (radical focus on simplicity and customer satisfaction / NPS) rather than because of any given product this approach produced.
Some may argue that we are confusing correlation with causation, but in all my research I am yet to find a successful business that is not accompanied by management that is constantly thinking about the HOW. There are certain fundamental common traits among success stories. The right HOW does not always lead to the right outcome, but no right outcome is achieved without it.