The Most Important Thing to Building a Successful Company

What’s the most important thing to building a successful company? There’s so much that could be said — technology, optimization, a fully integrated internal tech stack, years of experience, and more. But at the end of the day, the most important advantage a company can have has been the same advantage that has made many companies great, successful, and some of the biggest in the world. That advantage is simple. It’s survival.

At the end of the day, there is more out of your control than in it. Markets go up and down. You cannot predict them. You don’t know why they will change. You don’t know what will happen in the world. Interest rates go up, they go down. Stock markets go up, they go down. We have recessions, depressions, booms, busts, and different sectors. Consumers have lots of money and access to credit, and then suddenly there’s no access to credit and limited spending. Companies with the greatest technological advantage and the smartest people fail all the time.

Cedar Creek Capital was built prior to 2008. We took on very little debt. We learned as we went. There was not a lot of information available. We were in an extraordinarily fragmented industry with limited opportunities and exits. We had to figure it all out through mistakes and by continuing to move forward. We knew we had to have room for error. Failure and flexibility were embedded into the business plan because there was no alternative. There wasn’t even enough information out there to really operate by, underwrite, or anything else.

We survived 2008. And then from there, we scaled up — never taking investor money. We grew our business both externally, through buying facilities, and internally, by investing millions of dollars into infrastructure and software. Things we needed to compete that simply didn’t exist in the market. We had to build what we needed because it didn’t exist. We had no choice.

This led to some fundamental differences between our company and others. We had cash on hand. We had low debt. We were self-sufficient. When we finally started taking on investors — 15 years after the company started — the foundation was already built on our own money, our own assets, and our own management. This put us in a position where we could survive COVID, and even more importantly, survive the high interest rate market that killed so many others in our industry and across commercial real estate. A time when storage rates fell further than ever in the history of the industry — deeper declines than even 2008. From that, we were not only able to survive, but we were able to buy and take advantage of opportunities from those who were not prepared.

Here is what most people get wrong: it is not the strongest, the smartest, or the most funded companies that grow and become truly successful. It’s the ones that survive.

We had cash on hand. We were able to cover shortfalls of properties that were hit really hard in the high interest rate environment, when demand for storage fell off a cliff and rental rates in some of our markets dropped by more than 50%.We covered loses so our investors didn’t get hit. A lose to us but protected investors in a volatile maket. We chose not to charge our investors’ properties the management fees they were owed. Those fees weren’t profit to us — they covered property management, employees, and operating expenses. We paid them out of our own pocket. Cedar Creek Capital has never made money from an investor, ever, in its history. We covered shortfalls and losses. We paid for CapEx improvements and other things to improve the properties. We have never done a capital call or lost investor money. We carry low debt and have never cross-collateralized assets or put ourselves in a position that could compromise the portfolio. All the money my partner and I have made is off our invested capital only.

This is the lesson: structure protects you when markets don’t.

It was precisely this discipline that allowed us, as markets stabilized and began to turn around, to take advantage and purchase properties that were getting lost — assets that were going to go under or be taken over by banks — expanding our footprint in the process. The money we used to cover shortfalls and reinvest into properties, we never expected to get back. That was capital deployed to make sure our investors didn’t get hit. It was a long-term view — on our investments, our company, and where we were going.

I have never heard of other general partners or companies willing to step in and do what we did. Our company was able to survive, continue, and take advantage of opportunity because of its structure. Our company assets, our personal assets, and the capital we had on hand gave us optionality. It allowed us to cover when others couldn’t. That is what made us stronger and put us in a better position as the next cycle continues.

It was the same approach that carried us through 2008. When real estate was at its lowest, we again had low debt, no bad debt, and no cross-collateralization. We were able to not just survive, but to come in and buy properties when everyone else had no options. Properties with no other bidders and no one else even in a position to buy.

The lesson here applies to any company in any industry. Companies that grow the fastest don’t always become the biggest. It is important to do things the right way, to not rush, and to put yourself in a position where, when things go bad — and they always will — you don’t lose control or lose everything. This is not easy. This is not quick. But over 20 years of doing this, we have learned that we are not in control of markets. We never know what will happen. We cannot predict the future.

So you stick to the fundamentals. You protect your downside and put yourself in a position to weather short-term market swings in either direction. You position yourself to take advantage on the acquisition side when markets are down, and to capture upside when markets are up. Not by predicting markets, but by being in a position to take advantage of them whenever the opportunity comes.

Because we were able to do this — survive, last, and never lose assets — we were also able to compound our internal operations, our technology, our infrastructure, our network, and our position in the market. The compounding of these less visible things are the hidden drivers of performance. The institutional knowledge you gain over time. The infrastructure you’re able to build. These intangibles compound quietly and express themselves years later in very tangible ways.

The most important thing to building a successful company is not the smartest strategy or the best technology. It is being built in a way that lets you survive long enough to compound. Build right. Build for failure, risk, and flexibility. Don’t time markets — take advantage of them.

— AJ Osborne, CEO | Cedar Creek Capital | Eagle, Idaho