Sometimes, investing is really simple. You just look at the numbers, then look at the people.
My former client Circle‘s CEO resigned yesterday, and his statement – full of qualifiers about how “the board had agreed” – delivers a clear message that he was pushed. A few big numbers confirm why. I decided two years back Circle had no longterm future, but my concern now’s with the broader effect on private providers.
We’ve got to have more private provision of public services. But if Circle fails, the fat cats of Britain’s bloated public sector will think they’ve won.
Ali Parsa was actually a decent guy (for an investment banker) with a heroic personal story, and many of the people I worked with there were highly intelligent and qualified. People with a vision of private providers edging out inefficient public sector organisations, saving the NHS from itself. It was a good vision.
When Circle was my client, I poured in far more time and resources than they ever paid for. (Until I was pushed out by a rather odd newcomer, who herself lasted about a year I think.) I believed in the vision and enjoyed working on it. But what clinched Circle’s fate for me was the Hinchingbrooke contract: a £1bn poisoned chalice.
My opinion: Circle needed a big number on its balance sheet to keep investors hot. And £1bn is a big number. But Hinchingbrooke is a big hospital – far too big – and spread over ten years, £100m a year to keep it going with the capacities and commitments agreed didn’t look likely. As that’s become clear, the share price has been falling, hitting a nadir around a quarter of its launch price.
There’s nothing wrong with the vision. The issue for me was Circle’s culture. What it never had – in my opinion – was enough of “the boring stuff”.
What’s the boring stuff? Effective management structures and chains of responsibility, roles and resource planning and basic management accounting. Taking its traits from Parsa himself (as all companies do) it preferred a seat-of-the-pants, on-the-fly approach, resulting in vast energy going into minor decisions and an office culture that was more battlezone than bureau, clever people often taking decisions outside their expertise and projects withering on the vine whenever a Next Big Thing came along. Just like an investment bank. (I’ve had investment banks as clients, too, and what happened in them wasn’t so much people management as crowd control.)
It was chaotic… but everyone felt that if they’re working this hard, they must be achieving something.
And they did: Circle single-handedly shifted the debate on private provision of public services. (Like any organisation, the NHS has bloated over time. Far beyond Bevan’s remit, into a monster that thinks it can do everything, without the market mechanisms that tell you what’s useful.) With this news, I’m concerned it’s going to shift the debate again – back in the dastardly public sector’s favour. The union bosses are already crowing.
(An aside: have you seen UNISON’s office building? This supposedly public-service-inspired organisation has the most luxuriously appointed headquarters outside an African dictator’s gin palace. Nobody loves the trappings of wealth quite like a socialist.)
If Circle fails at Hinchingbrooke (the first NHS hospital to be taken over by a private provider) it means the public sector workers who hate private business will consider the case closed. Politicians will listen to them. And the debate will remain poisonous for decades. No private provider will be allowed to run public healthcare services again, and the NHS will keep sucking taxpayer funds into its gaping maw until it destroys us all.
I’ve been mentally short Circle since Day One; knowing the company’s personality and finances, I thought – and still think – Hinchingbrooke will be the death of it. But I hope against hope it can succeed – because if Circle fails, the public sector will think they’ve won.