TSP074 | Laura Rittenhouse – Transcription
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John Livesay:
Today’s guest on The Successful Pitch is Laura Rittenhouse, the author of “Investing Between the Lines.” Warren Buffett endorsed her book, so she clearly knows what she’s talking about. She is an expert in candor. She has a candor investment fund, as well as a candor boot camp. She said, “When you lie to other people, you end up lying to yourself as well,” and she has seven systems that really help you be really focused on knowing how to be successful in investing. One of her key elements is looking at a shareholder’s letter and being able to predict how that company’s going to perform in the stock market, based on what kind of candor the CEO shows in that stockholder’s letter. So your communication is everything. She said, “Without candor, there is no trust, and nothing happens outside conversation.” So make sure that you’re having clear, concise conversations with people that tell them what your purpose is, that expands upon your vision for the company.
The interview begins in 45 seconds right after this information on how you can get funded fast.
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Hi and welcome to The Successful Pitch. Today, I’m thrilled to have as my guest, Laura Rittenhouse, who is a trust and valuation expert, as well as a financial strategist and innovation coach to Fortune 500, and small kept companies. She’s the founder and CEO of Rittenhouse Rankings, and the author of an amazing book called “Investing Between the Lines,” how to make smarter decisions by decoding CEO communications. I’ve had the opportunity to talk with her before the show, and you are all in for a huge treat. Laura, welcome.
Laura
Thank you John. What a pleasure to be with you on this call.
John:
Well, you are, not only someone who’s smart and kind and connected, but just so enthusiastic about life. I just love people like you who make the world a better place. So, before we get into all the books and your connections to Warren Buffett, who by the way, everybody — Warren Buffet said that you are on the side of the angels. So Laura is in fact somebody that you’re going to want to get to know and you must read her books, Investing Between the Lines, Buffett Bites, just such an expert. How did you become who you are? Take us back a little bit before you started your company, and your first early jobs that made you want to get into all these world of investing.
Laura:
Well, coming out of college, my first job was being accepted as a Peace Corps volunteer.
John:
Oh, I love it.
Laura:
And I worked in an orphanage in Turkey, and that was one of the most meaningful — it was a great experience because I was a total failure. Well, it wasn’t a total failure but I was a failure in a sense that we had signed on for a two-year commitment, and it ended up being one year because the revolutionary fist of a free and democratic Turkey wanted to bang on their heads, and it started that it would be a good idea for us to leave the country at that point.
John:
Well, that leads me right into — I’m going to jump around, but we’ll go back to your background. You are ranked 100 most trustworthy people in America, by Trust Across America, so you’re an expert in candor and trust, but you just wrote this amazing blog “Clowns Without Borders”, and so now that I know that you’re in a Peace Corps, it then speaks more to why you have such authenticity around this. Can you just tell us a little bit about that great blog you wrote, “Clowns Without Borders”, and how you’re making such a difference in the world by just putting that out there for people?
Laura:
What an amazing story John, it also – the story gives us a window into the told topic of Candor. What I blog for forms, and what I’ve wanted to start is a series on candor heroes, and who are the candor heroes? They’re people who, and as you and I have discussed, are courageous and shining light into dark places. That mission is embodied in the very word. The word “candor” comes from the latin candeō which means to illuminate. So the word “candle” of course comes from that same root word, and when you think what does illumination do? It shines light into dark places. So the leaders who do that, very impressive and also very courageous, so the blog started out of a webinar I was listening to on a topic very much related to candor called Conversational Intelligence. Wonderful work and it links brain neural science. With the opportunity we have to use conversation on the way to create good things in the world and to avoid creating bad things.
So, the person hosted this, a man named Benjamin Croft, at the very end of the blog he said, “Well, glad that you’re on the call today and by the way, in a few weeks I’m going to be on the Syrian border, with Clowns Without Borders, which me luck.” And I was stunned, I thought, “Oh my heavens. Clowns without borders, I know about doctors but whoever heard of clowns.” So I immediately googled them, it’s a legitimate organization. I contacted Benjamin, he wrote back to me and we become friends since then, and yes indeed, this story happened after the Paris attacks. He was in Istanbul at the time, and he said “We have to do something. What can we do?” He used the money that they earned from giving this webinar, and they sponsored a tour of Clowns Without Borders. They brought Clowns over from the US, they contacted clowns in Turkey, and after about a week and a half of training and so on, they actually went to this refugee camps along the border.
There was one place, they went to an eastern Turkey, where only just a month before, of 20 people have been massacred on the same stage where they were performing. So it was almost like an exorcism there, to have this horrible experience and now transformed by the clowns into a place of joy. I felt so strongly that it was important to get this message out into the world, and I’ve got terrific response, wonderful emails back from people who were so inspired by it.
John:
Well, it’s just taking a wonderful concept of lighting something in dark places and bringing it to life because it doesn’t get much darker than that, and clowns are such an opposite. You don’t think you have time for laughter and joy when you’re in survival mode, and yet something like that can remind us all of how we can shift our focus so quickly, and like you said, “Don’t curse the darkness, light a candle”, right?
Laura:
Absolutely. I love what Benjamin said too when he said, “There are lots of things, we could’ve brought them stuff, but stuff can be stolen, stuff is used.” We wanted to bring something that couldn’t be stolen, that could last forever.
John:
That’s so wonderful.
Laura:
With a memory like this, how can you not love it?
John:
Making a difference. Now you were at Lehman Brothers for 10 years, being involved with corporate finance and then now you’re running Rittenhouse Rankings, and you really have become an expert in being able to cut to the chase as it were, really cut through that clutter and get to what’s going on, so tell us about candor investment fund and what you do there.
Laura:
So leaving Lehman Brothers, and you asked earlier, how do I get to do the things I’m doing today? So I love to be in the Lehman Brothers, this was the time when I was still very much guided by the value of making sure that funds were taken care of, and serving them, and coming up with brilliant ideas on how they could run their businesses better. But I reached the point in my life where I felt that — I think that a lot people if you’re lucky, you get to the point where you say, “Well, who’s life am I living? Am I living the life I should live or the life that I truly was born to live?” And so I decided I wanted to take some time out, to figure out what that was. So I spent a year travelling, talking to people. A lot of the CEOs that I had worked with on Wall Street, called me and they said, “We still want to work with you. What can we do?” And so we began to set up investor relations program which at that time, was a new thing to do. In doing that, it became clear that the reputation of the CEO was a major factor in the stock price valuation, and so if my CEO clients who’d become truly effective authentic communicators, and build trust because without candor there is no trust.
Then this would be a very powerful way to enhance the valuation of their company, and also, because if you have trust as the foundation of a corporate culture in a business, you’ve got people operating and also, there’s wanting to work together. They’re aligned in a mission, aligned in a strategy, and you’re going to be generating better results than your competitors who don’t have high levels of trust.
John:
We’re going to tweet that out, “Without candor, there is no trust.” That is so insightful. What do you think caused you to be ranked as 100 most trustworthy people at business. You’re clearly an expert on this. I’d love to have you define what makes people trustworthy as they have to be candor and transparent, right? I believe you’d thrown the things you’ve talked about before.
Laura
Well, I have a client that when he introduces me to people, he likes to say, “I’d like you to meet LJ Rittenhouse. She spots bullshit faster than anyone.”
John:
That’s great.
Laura:
I consider that a great tribute.
John:
It is. Well, one of your key expertise is looking at a shareholder’s letter and a stock report, and not even have to read anything else to determine whether that’s a good investment or not, right?
Laura:
Well that’s exactly right John, and that’s what has led to creating the first ever candor investment fund. So, in that work I was doing was CEOs, working with them on their strategies in order to be effective with your investors, you had to have a very compelling story and it had to be real. Again, the basis of conversational intelligence is that nothing happens outside of conversation, nothing. Conversation is the special sauce that creates things in the world.
John:
It’s not email, it’s not your proposal, it’s not your business plan, it’s conversation, right?
Laura:
Well, that’s conversations about the business plan. It’s emails that stimulate conversation and again, person to person is still more powerful ultimately than digital to digital. I don’t want to take anything away from digital. We’ve seen that it can have a lot of power too, but in terms of — in my experience, moving things forward in the world especially new things that something like candor. It’s funny, people are afraid of candor. When I say the word, they get nervous, because they think that I’m judging them as to whether they’re lying or telling the truth, and more importantly, what people missed is the element of authenticity.
Mark Twain wrote so many wonderful things about candor, and truth and lying. He said, “Tell the truth and they don’t have to remember what you said.”
John:
There you go. Well it is so important when you’re pitching for an investor too, that you are authentic, because you can’t lie. It will come out during due diligence and the whole deal will fall apart.
Laura:
Right. Well there goes the trust. There goes the trust, but getting back, so you’re asking about the shareholder letters. So as I was advising my CEO clients, I read lots and lots of shareholder letters. I read my client’s letters and then I read letters of their competitors or their peer companies. Over time, I began to see patterns, and that’s the first step in creating a model of reality. That’s the first step in creating a taxonomy, so that you could begin to find the similarities and the differences, and the ability to compare and contrast. Does that make sense to you?
John:
It does. I think it’s fascinating that you can measure something like candor into structure, and then make productions based on that.
Laura:
Well the book, “Investing Between the Lines”, which I was so — I’ve never expected this. It was more than a dream come true, but this book was recommended by Warren Buffett in his shareholder letter. The grand daddy, the gold standard of all shareholder letters, and Warren throughout the years has been very supportive of our work. So, what the analysis when investors, portfolio managers, I’ve talked with them over the years and I’ll give them my conclusions about the value proposition, the investing value proposition in a company. It’s almost a ludacrest, they’ll say, “Yup, we understand. We agree with that. Yup, we agree with your assessment and management. Spot on. Yes, this is a strategic vulnerability they have. Yes they’re doing great. They make great products.” So much agreement, and at the end, I’ll sit back and I’ll say, “Well it’s just great that we see so much of the same thing, but let me just observe something.”
Number one, you spend hours and hours running spreadsheets, talking to management, talking to employees, visiting customers, talking to competitors, going to industry conferences, you’re spending — doing all these effort, all I did was read the shareholder letter and we came out with basically the same conclusions.
John:
Crazy. It’s a huge amount of time and money you’re saving people if they just use your expertise. So what advice would you have Laura, for someone who is a founder, maybe they’re public, maybe they’re not, but if they have to communicate in whatever form that’s going to be whether it’s a pitch, or a shareholder’s letter to people so that you can get a sense of who they are. Is it the candor that we’ve had some troubles and we’ve address it, versus trying to just gloss over things? What is it you really look for when you’re looking at those letters?
Laura:
Well there’s something called a Strategic Balance and I described this in my book. After all the years of reading these letters and creating this taxonomy, it became clear that all the topics we were coding and scoring for, could be organized into a seven system model. And those seven systems are strategy supported by accountability systems such to, vision supported by strong leadership, the backbone of a company of the stakeholder relationships, the quality of the those relationships, and then the center of a business is the commitment to capital stewardship, after all, it’s a profit-making company, and if you’re not focused on how smartly you’re allocating the capital, you’re probably wasting it and you won’t be meeting your investor’s expectations and you could go out of business. So capital stewardship is a key principle, something to observe, and most importantly, is candor – that’s the seventh system in this business. As we’ve said, candor supports the quality of the stakeholder relationships and builds trust.
Now, you asked how do we make assessments of companies? Well, we have seen over time that companies that are balanced, which have high scores, high linguistic scores, content scores, and are balanced between — they’re not all strategy, but they have good balance between strategy and accountability systems. Good balance between vision. It’s not over 50% vision and then very little on the other system. So companies that are very well-balanced, and you think about it, that gives them a solid foundation to deal with whatever the economy, their competitors, whatever gets thrown at them. So that’s one factor.
Another factor is the BS and the truth telling, and that’s a very important factor and those are the rankings that we publish every year. We rank order a hundred companies based on how much candor, positive candor, truth telling they have, and how much of the discussion or BS they show in their communication. Then when we correlate these top ranked companies and the bottom ranked companies, we found over the past decade that the top ranked companies outperform the bottom ranked, and also outperform the market over this period.
John:
So let’s talk about the connection between candor and vision, which is one of your other strategy, the systems that you talked about, I’d love to hear that connection and how important it is to balance your vision and your candor.
Laura:
Well, let me ask you, what do you think of when you think of vision?
John:
Well I think it’s important for a founder to have a vision that they can communicate to their employees, about where they see the company going, what the mission statements is, what the big picture is, and then turn around and communicate that to anybody who is going to invest, whether it’s an angel investor or stockholder eventually, and so having that vision and if that vision needs to change being able to communicate that with candor.
Laura:
I’m so glad you asked me that question because it gives me a chance to focus on something that I’ve been spending a lot more time thinking about. So you’re absolutely right. When people think of vision they often think of what’s our mission, and I think the word that kind of relates to that but I think is more powerful, is what is our purpose.
John:
There we go. Yup.
Laura:
What is our purpose, and I’ve been watching this video of Richard Leider, who does a lot of focus on this and he likes to say, “So, what are two most important days in your life? We can look on this as both a business and as one’s own individual life. Is it the day you were born or the day you die?” ‘No,” he says. Two most important days are the day you were born and then the day you learn why you were born – for a purpose.
John:
Nice. I love that. We’re going to tweet that out, “The day you were born and the day you learn why you were born.” Great.
Laura:
And that is no different from a company. If you’re in a company where you feel that this company is bringing something meaningful into the world, doing it with integrity, you can see what a difference it’s making. Boy! That gets you up in the morning, picks you up. It’s like Warren Buffett who likes to say, “I tap dance to work everyday.”
John:
What a great image that is, because there’s a purpose behind what he’s doing it. It’s not just to make money, right?
Laura:
Well, it is about making money because it’s his scorecard to tell who’s winning, right?
John:
Right, but if not just about that. He’s making it — yeah.
Laura:
But for him, it’s how he’s making that money — that support.
John:
Yeah. There we go, with integrity.
Laura:
How can we analyze companies better than others who are smartly, and who’s the really important distinction. How can we do it for the long-term? And what we have is the cancer, the cancer in our financial system. Here’s a tweet for you. “The cancer in our financial system is this focus on short-term dism.”
John:
Yes. That is a cancer, right, because you’re just constantly — that’s what causes turnover, that’s what causes moral, that causes fear, when you’re just focused on short-term vision of, “Oh, if we don’t hit number for the quarter year I’ll fire her.” We’re totally changing our purpose and our mission statement, and shutting down factories as opposed to seeing the big picture of what it could be.
Laura:
Exactly.
John:
What are some of your other quotes that you like from Warren Buffett? Because he has so many and I just want to hear what’s some of your favorites are, since you’re so connected to him.
Laura:
Well the one we shared that comes from his owner’s manual, and the reason why — it’s so interesting, Berkshire is the only company that has published an owner’s manual which means, just like if you’re buying an appliance and you get the instructions here, this is what you can expect from using this so he wrote the owner’s manual. If you buy the stock, this is what you can expect from us, it’s in the owner’s. The reason that candor is one of the principals that he follows and promises to investors, is because he says at the end, “The CEO who misleads others in public will eventually mislead himself in private.”
John:
There we go. That’s it. There’s the gem. If you lie to other people, you’re eventually going to lie to yourself, right?
Laura:
Exactly right, and thank you for saying that because that gets us into the topic of candor boot camp. I have worked with corporations on how to bring more candor into the organization, and that means working with teams. What’s most successful is when I worked with multi level teams, anywhere from presidents down to factory workers. It’s so powerful to get the people who don’t normally get to communicate with each other, have conversations with each other, to stimulate that, and there’s so much learning that goes on. It requires a certain humility, bringing humility to that, and hope in this that leads to innovation and creativity.
But, candor boot camp, when you think about it John, this is what we’re developing now, candor boot camp needs to be taught in three modules. So, first, and it’s what we’ve just mentioned in relation to the Buffett quote, first is intrapersonal candor. Bringing people together and helping each other. Suddenly confront the BS in their own lives. Now, what am I lying to myself about? What is special? What’s my purpose? What is my purpose and if I don’t know what it is how can I find that out?
So there’s that whole piece and you come up — people come out of that session and it’s almost like, I don’t want to say they’ve been to church because that has a certain kind of take these days, but it’s very free. However, once people have experienced what it means to live candidly, so go back into the workplace and work with other people that haven’t have this experience can be very hard.
So the next module is to bring teams together and practice different type of skills, and exercise so that people can practice team-based behavior.
John:
Because that allows everybody to be speaking the same language when you do that, right?
Laura:
Exactly, and feel safe. The whole point about candor, is that you create an environment where people feel safe to say what they’re really thinking and what they really need.
John:
You know Laura, it’s so interesting you said that, because to me that’s the highest compliment anybody can ever give me is, I say it, I feel safe when I’m with you to be myself. And if someone says that to me, and it’s also the highest compliment I can give anybody, right? I can take my mask down, I can be a little bit vulnerable with you. When you said earlier about humility, is one of the keys to innovation, that’s such an important takeaway for our listeners. When you’re pitching for funding for your company, you have to come across confident and humble at the same time. In other words, you have to be coachable because that’s where the innovation comes. You can’t know everything and nobody wants to invest in somebody who thinks they know everything, but they want somebody who has a vision, with candor and humility, right?
Laura:
Beautifully. Beautifully said. So that gets us to the third module which is creating the candid enterprise.
John:
What’s a candid enterprise? Tell us about that.
Laura:
We’re inventing that even as we speak.
John:
Love it.
Laura:
So, what it means is, okay, you start from the individual, the individual works in teams, but then there is a business, an enterprise or corporation, whatever, that has a set of principles, a set of goals and strategies that if these are not based on candor, then your teams are not going to be able to be supported in their efforts to candidly co-create and work together, and achieve greatness. So, there needs to be a design, design work, to make sure that the enterprise itself has principles and expectations built into it that — going back to our — just prior comment, that make it safe for people to experience candor on the job.
John:
It goes back again when you said this, “If you have a purpose of doing greatness, then everyone’s focus on that, as opposed to necessarily trying to claim all the glory for a big idea or something, right?
Laura:
Exactly.
John:
Yes because that’s — not only do you have to create a great team to get investors to want to invest in you, but then you also have to keep them working well together. It seems to me that this candor boot camp is the secret sauce to keeping a team on the right track, because you can get somebody who wants competitiveness and I want to get promoted over you, and I want credit for this, and you’re way of purpose, right? And it happens all the time.
Laura:
That’s right, and then that’s why those three levels, interpersonal team-based and enterprise, are absolutely essential to be viewed together, because if you have one and not the others it’s just, you can’t support people in this candid enterprise.
John:
How did you come up with the title “Investing Between the Lines”? I love the title so much and it implies a little bit of intuition, but I would love to hear how you came up with that title.
Laura:
Well, it’s a play on words, right? In fact a lot of people say to me, “Well, I love your book Reading Between the Lines,” and I have to say “No, no, no. It’s Investing Between the Lines.” But of course, that’s the phrase that most people are familiar with, and what does Reading Between the Lines means to your point? It means that you intuit that you’re taking signals on what’s obvious, the surface and you’re getting deeper meaning from it. So similarly, Investing Between the Lines means okay, I’m reading this and I’m intuiting ideas and analyzing, I’m processing information that allows me to make a better smarter investment decision.
John:
It’s so great. I love it. Laura, how can people find out more about you, Investing Between the Lines, the candor boot camp, Twitter, all that good stuff?
Laura:
So, first of all you go to our website www.rittenhouserankings.com. Secondly, visit my blog ljrittenhouseforbes.com.
John:
Great. Did you have any last thoughts for our listeners about how we can all have a bigger purpose make a bigger difference in the world? From what you’re doing is there something that you would like to leave us with that’s inspirational?
Laura:
Well, here’s a very very important concept. People often say, “We need more trust in the world. We need more candor in the world.” Well, that’s only going to happen if everybody makes a commitment to be trustworthy. If everybody makes a commitment, okay, I will say what I really think, what I really mean, then I’ll say it in a way not to attack people, not to be a jerk, not to beat around the bush, but because I committed my purpose here. I’m committed to work creatively with other people to make a positive difference.
John:
Nice, and what’s so great about you is how did you put that out there, but you also show people how they can do that and make money at the same time, and most people think it’s one of the other, a newer, a living example of how to put something positive into the world and be strategic, and still make a great return on your investments. Laura, I can’t thank you enough for being on the show today.
Laura:
John, thank you for having me and thank you for the work you’re doing.
John:
Thanks.
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You know, people say that the longest distance is between someone’s mouth and their wallet. People can tell you they’re going to invest but when it comes time to write the check, they don’t do it. So, how do you get people to say yes and then follow through? Visualize yourself on the left side of a riverbank and you have to cross the river and on the other side of the river is where the funding happens.
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