The Only Lever Left
Private equity is mourning the death of its oldreturn math: leverage costs too much, entry multiples have nowhere left to run,the exit no longer lands above the entry by default. Three of the four leversthat built that industry were financial, and the one still standing —operational delivery — is the one its diligence machinery was never built toread.
Growth-stage Energy & Resilience never hadthe financial levers to lose. It had exactly two: a market curve and atechnology edge. The last three years took both — demand moving on anxiety andlobby outcomes instead of payback math, and a technology lead on thecommoditization clock. What remains, for both worlds, is the same lever:whether the organization can produce what the plan assumes. The plan is fullyinstrumented. The organization is not.
The instrumentation problem starts with thenumber most plans are built on. Charlie Munger's view of EBITDA wasn't rhetoricin this sector — it's engineering. Look at what the acronym deletes, letter byletter, in a hardware-and-software company. The D is the fleet: every unitshipped ages in the field, a real future bill on a physical schedule. The A isthe platform: the technical debt under every release the growth plan demanded.The I is the capital stack the asset-heavy model runs on. EBITDA removes preciselythe three costs that kill stacked companies, then presents what's left as"operational performance." Where reality still reports: EBIT atminimum, EBT honestly, free cash flow always — the line that cannot be groomed,because the field crews, the suppliers, and the debt service all collect incash. In plain terms: the metric most boards steer by was designed to excludethe cost of the machine that has to produce the growth.
I've been on both sides of the diligence table,sell-side and buy-side, and in none of those processes did anyone go to rootcause. Not once. Because the plan is not the organization. A plan requiring 60%annual growth isn't a financial object — it's a claim about an organization:that throughput can rise while the cost base holds, that the leadership teamagrees on where the growth actually comes from. Diligence verifies the growthis in the model. It has no instrument for whether the organization exists thatcan deliver it.
The last cycle wrote the same check into bothkinds of company. Those returns are public now.
What this means for your seat
If you hold family capital: When a board pack shows you EBITDAprogress on a hardware-and-software company, you are looking at a numberdesigned to exclude the fleet aging in the field, the platform's debt, and thecost of the capital stack. Ask for free cash flow. It's the line that can't begroomed.
If you run a fund: Your diligence verifies the growth is in themodel. Nothing in the standard process verifies the organization exists thatcan deliver it — and that gap, not the model, is where the last cycle's returnswent. The four-executive scene in the full essay is the pattern to check for.
If you lead a company: If your own plan requires growthyour leadership team hasn't agreed on the mechanism for — not the number, themechanism — the plan will not survive contact with reality, however clean themodel. Surfacing that disagreement early is not weakness; it's the only leverleft.
The full essay on Under Load goes further: thefour-executive scene — four rational positions, one plan that doesn't survivecontact with all four at once — the stress question nobody asks in reverse, andwhat a diagnostic can honestly claim versus what operational DD quietlyoverclaims.