Unintended Consequences

Even the best intentions in business can lead to terrible unexpected outcomes. As investors, it's our responsibility to look just beyond the financial potential and consider how things could go wrong.

Every Wednesday, our team holds a Pow-Wow/lunch meeting where we discuss podcasts, Netflix documentaries, books, articles, and more. A recurring theme that often takes center stage in our conversations is "Unintended Consequences in Business." This topic has gained traction after we watched and discussed Netflix documentaries like "Painkiller," "The Rise and Fall of Vape," and "The Social Dilemma." These shows prompted us to reflect on the severe unintended consequences of business decisions and the flawed justifications that we, as investors and entrepreneurs, use to claim we are doing "good". At Crescent Ridge, we recognize we are not immune from these flawed justifications and work diligently to put checks and balances in our processes so we don’t make the mistake of prioritizing short-term financial metrics over the greater good.

Recently, our investment committee decided against a deal I presented and was very enthusiastic about. This was a consumer health and wellness company that demonstrated exceptional financial performance and capital efficiency, and we had built a strong relationship with the founders, sharing similar values and goals. It represented the type of mission-driven opportunity we typically pursue, with both significant financial upside and positive social impact. However, the committee raised concerns that the company's growth could lead to an increase in single-use plastic usage, an issue we hadn't fully considered during our due diligence, likely blinded by their outstanding performance and other positive social impacts of the investment.

As investors, we have the power and responsibility to shape the future. By fixating solely on short-term financial gains, we risk pushing well-intentioned entrepreneurs towards decisions that could have disastrous unintended consequences. It's important for investors and entrepreneurs to avoid surrounding ourselves with yes-men and instead, value team members who consistently challenge our decisions. This approach ensures we don't compromise the greater good for financial success. I am particularly fortunate to work with Allison, who thinks very differently from me—I tend to focus more on financial aspects, while Allison is more futuristic and socially-conscious. She challenges my perspective and helps me see the other side of the coin. Over the years, we have learned to engage in very constructive disagreements.

Do you often think about Unintended Consequences in business? Would love to hear your thoughts!

Maria Gonzalez-Blanch