How Investors ‘Hire’ Your Hedge Fund

Nathan Anderson | July 2, 2015

How Investors to 'Hire' Your Hedge Fund

Your fund fits into one (or more) standard buckets – long/short equity, global macro, distressed debt, event-driven, etc. These monikers are ubiquitous in the industry, and investors will ask for them by name. Despite this, these buckets are completely counterproductive in your marketing pitch, and you must learn to look through them.

 

I want to demonstrate another way to look at your fund with a real-life story. The example comes from an excellent book called “the Innovator’s Dilemma” which I highly recommend for any manager and/or marketer. In the example, a chain-restaurant wanted to market their milkshake more effectively.

How would you classify a milkshake? Some might say it’s a beverage, a snack, or a dessert. Most marketing professionals would begin their marketing effort by dividing the world into demographics by race, age, gender, or ethnicity. They would then focus their marketing efforts on the ideal group/group(s) shown to be interested in milkshakes along those lines. This would be a completely rational approach. In this case, our restaurant chain hired an expensive marketing group to do just that—and it failed miserably.

Another marketing group took a different approach. Rather than trying to slice up the world by demographics, they tried to figure out why people were buying milkshakes. In other words, what ‘job’ were people hiring the milkshake to perform for them? Here are their fascinating results:

Morning commuters ‘hired’ milkshakes to cure boredom on their long drive in to work and have an early snack. They faced certain constraints: They were in a hurry, were often wearing their work clothes, and at most had only one free hand.

When these customers looked around for something to get this job done, sometimes they bought bagels. But bagels got crumbs all over their clothes and the car. If the bagels were topped with cream cheese or jam, their fingers and the steering wheel got sticky. Sometimes they ‘hired’ a banana to do the job, but it got eaten too fast and did not solve the boring commute problem. It turned out that the milkshake did the job better than almost any available alternative. If managed competently, it could take as long as twenty minutes to drink a milkshake through the thin straw, addressing the boring commute problem. It could be eaten cleanly with one hand with little risk of spillage, and the customers felt less hungry after consuming the shake than after using most of the alternatives.

In the afternoon it was often parents who purchased milkshakes, in addition to a complete meal, for their children. What job were they trying to get done? They were emotionally exhausted from repeatedly having to say “No” to their kids all day. They ‘hired’ milkshakes as an innocuous way to placate their children.

Segmenting the market along demographic or psychographic lines indeed provides information on individual customers. But the same busy father who needs a viscous, time-consuming milkshake in the morning needs something very different later in the day for his child.

Knowing what job a product gets hired to do (and knowing what jobs are out there that aren’t getting done very well) can give innovators a much clearer road map for improving their products —beating the true competition from the customer’s perspective-in every dimension of the job.

So how does this apply to your fund? Ask questions of your investors to find out what jobs they want performed in their portfolio. Maybe they are afraid of certain things, or maybe they are feeling opportunistic about others. If they say they are looking for “a good long/short manager,” inquire: Why long/short specifically? Only when you understand the core of what they are really after can you begin to apply for the job. Take the time to ask —if you don’t, you risk everything. The minute your pitch diverges from their needs is the minute they will stop paying attention, and you’ll likely never get it back.

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Nathan Anderson

Nate co-founded ClaritySpring and oversees the company's strategy and operations.

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