Opinion

'Fit For Purpose' - David Giampaolo

Continuing the theme of happiness, have you ever wondered what makes very rich people happy?

We get a rather skewed view from the populist press, who enjoy telling tales of conspicuous consumption and bad behaviour. My personal experience is that most wealthy people I meet seem to spend a significant part of their time worrying about how to prevent their children turning out anything like Paris Hilton, and also how to give something back, given their good fortune of health and prosperity.

It all seems to centre on the 'work ethic', something endemic in first generation immigrants to the USA like David Giampaolo's father. He was a jazz musician and businessman, and told his sixteen-year-old son that, while he would love him and always look out for him, it was about time his son got a job and started paying rent at home.

Giampaolo Junior noticed that there were plenty of lawns that needed cutting for a few bucks, so he set up a nice little business and was soon employing some of his pals. But it was hot and sweaty work in Florida, so he followed his next passion and set up a small gym in modest surroundings, aimed primarily at a blue-collar clientele.

He also attracted some white-collar customers, and persuaded a couple of doctors to invest in more lavish premises, some proper health clubs featuring some of the newly popular fitness machines. He expanded to three clubs, and then sold out. He then sensibly further learnt his craft as an employee in a large chain of health clubs, and soon found himself sent to the UK to open up the original Barbican Health Club. In 1998 he co-founded Fitness Holdings Europe, which was acquired 18 months later by 24 Hour Fitness Worldwide.

Like many people in this enviable situation, David decided to move to the other side of the equation and look at investing in other companies, mostly those outside the health and fitness industry. This is a natural progression, but requires a completely different set of skills, not just the ability to read and evaluate business plans.

Successful people making this transition find themselves moving from being mentored by others to doing real mentoring themselves. The up-and-coming entrepreneurs they meet are always looking for help, advice and contacts. They can also be just as driven and headstrong and not heed the good advice that they receive, which can be a tough learning experience for the mentors.

Giampaolo joined Pi Capital, a group of like-minded people all looking to invest in up-and-coming companies. He had so much fun that he organised a management buy-in and became Chief Executive in 2002

Pi Capital is now a group of 300 people, an interesting combination of self-made millionaires and top FTSE executives, who meet on a regular basis to hear presentations form the great and the good on a wide variety of subjects. Common themes are market dynamics and philanthropy, but much of the focus of the meetings is towards what might or might not make a good potential investment for the members, who opt in on a deal-by-deal basis

Pi Capital does not invest in early-stage, pre-revenue companies, preferring to take existing, profitable companies to the next level, for example turning five successful health clubs into fifty. Most important, there should be a good management team in place, people they feel that they would like to work with in the first instance

This seems to be how wealthy people really enjoy themselves, by actually still doing things in a business context. They have to learn not to be too hands-on and interfere as this will inevitably lead to conflict with the entrepreneurs. But they can still be involved in their own way, depending on their own personal profile and experience.

It could be improving the mechanics of the business, or suggesting potential executives from their personal networks, or doing deals with their high-profile contacts, or just behind the scenes helping with the growing of the assets of the business; whatever they personally most enjoy doing on a day-to-day basis.

This is exactly the kind of investor that an entrepreneur needs; someone who will take an active interest in the business, rather than turn up once month for a board meeting, looking for the return on their investment.

All business problems have logical solutions, even if they are sometimes hard to execute. If you are missing your profit forecasts, then you probably have an underperforming sales director or a finance director out of their depth, or both. If this is one of your co-founders, then the issue is personal as well as business-related. An external investor with real hands-on experience will usually have had to experience 'letting go' someone who they were close to, so can advise on the most humane way to do it.

External investors also provide a necessary check and balance for the business itself. Most entrepreneurs want to have fun first and make money second; investors are the other way around. When pitching for investment, it is very important to spend less time on extolling your vision, and more time explaining exactly how and when you will provide a return on investment.

Some entrepreneurs, once they have secured their funding, lapse back in to 'vision' mode, and wonder why the investors will not continue to throw money at the venture forever. This is why you have to pick your investors carefully, in case times get hard. A good friend of mine, who has raised money many times, explained to me that "when you start, you have an investor and money. When the money is gone you're just left with an investor. So choose carefully!"

And if you find yourself involved in the specific activities that you enjoy most, then you will definitely increase your chances of happiness. It is clearly not just about personal possessions; someone always has a bigger house or ocean-going yacht. It is about actually doing things, and having a sense of purpose.

And if as an investor you find yourself involved in the specific activities that you enjoy most, then you will definitely increase your chances of happiness. It is clearly not just about personal possessions; someone always has a bigger house or ocean-going yacht. It is about actually doing things, and having a sense of purpose.

And at the end of the day, as Giampaolo explained, "money itself does not make you happy, but happy people always seem to have enough."

By Mike Southon

This article is © Mike Southon 2008. All rights reserved.
The article originally published in the Financial Times www.ft.com/mikesouthon
Mike Southon can be contacted at mike@beermat.biz www.beermat.biz