Deferred Maintenance

Lately I’ve become a little obsessed with something I can’t stop seeing.

Once you notice it, it’s everywhere.

I call it deferred maintenance.

It started back in March when I stayed at a ski resort out west. At first glance it was exactly what you’d expect from a high-end property. Beautiful location. Nice restaurants. Friendly staff. But after a day or two I started noticing little things. The bathrooms felt twenty years old. Some of the paint was peeling. Fixtures were dated. Nothing that ruined the experience, but enough that you couldn’t help but notice.

I looked it up afterwards and saw that the resort had been acquired by a private equity firm a few years ago. I obviously don’t know the details, but my guess is that the economics looked very different when interest rates were near zero than they do today. When cash gets tight, maintenance is often one of the first things to be deferred. You stop repainting. You postpone replacing furniture. You stretch equipment another year.

Individually, none of those decisions matter very much.

Collectively, they slowly change the character of the asset.

That’s what makes deferred maintenance so dangerous. It almost never looks like a crisis. It looks like a hundred small decisions that all seem perfectly reasonable in isolation. Five pounds you’ll lose next month. Software you’ll rewrite after the busy season. The engineer you’ll hire next quarter. The conversation with your spouse that can wait until things calm down. Nothing breaks overnight. The bill simply compounds in the background until one day it becomes impossible to ignore.

Since that trip, I’ve started seeing the same pattern everywhere.

You drive through old vacation towns and find incredible homes that have been in the same family for generations. The bones are beautiful, but the landscaping isn’t what it used to be. The trim needs paint. The driveway is cracked. The house still looks impressive, but you can tell it’s slowly moving in the wrong direction. Every year the repairs get a little bigger, a little more expensive, and a little easier to postpone.

I think we’ve done something similar with a lot of our infrastructure in the United States. Highways, bridges, rail systems—many of them were built generations ago. We patch them. We repaint them. We extend their lives another few years. Sometimes that’s perfectly rational. But eventually every deferred investment shows up as a much larger bill.

Businesses work exactly the same way.

One criticism you’ll sometimes hear of certain value investors is that they become too focused on harvesting cash and not focused enough on reinvesting it. Whether that’s true in any individual case isn’t really the point. The point is that every business, no matter how durable, is a living system. Equipment wears out. Processes become outdated. Software gets old. Customer expectations change. Competitors improve.

If all you ever do is extract cash from a business, you’re slowly borrowing from its future.

Now, I’m naturally wired in almost the opposite direction. My instinct is usually to fix everything, improve everything, and grow as quickly as possible. That comes with its own problems. You can’t launch ten major initiatives at once. You can’t solve every issue in a single quarter. Organizations have a limited capacity to absorb change, just like they have a limited capacity to absorb neglect.

The goal isn’t to maximize reinvestment any more than it’s to maximize distributions.

The goal is balance.

You want to harvest enough to justify owning the asset, while continually reinvesting enough that the asset is actually worth more five years from now than it is today.

One thing I’ve become increasingly convinced of is that your capital structure often determines whether you’re even capable of making those decisions. When businesses become overleveraged, maintenance stops being a strategic choice and becomes a luxury. Equipment lasts another year. Hiring gets postponed. Innovation slows down. Not because management suddenly became lazy, but because they simply don’t have the financial flexibility anymore.

Cash flow determines maintenance.

Maintenance determines durability.

Durability determines long-term value.

That’s one reason I’ve always been drawn toward businesses built around things that probably aren’t going to change very much. Warren Buffett has a great mental model for this. During the financial crisis, someone was asking him about everything happening in the markets. Buffett responded by asking what the best-selling candy bar was fifty years ago.

Snickers.

What was it today?

Still Snickers.

His point wasn’t really about candy. It was about focusing your energy on businesses built around enduring human behavior instead of constantly trying to predict the next big thing.

That’s how I think about Filterbuy. People are still going to need clean air decades from now. They’re still going to replace HVAC filters. That’s a durable foundation to build on.

But durability by itself isn’t enough.

You still have to keep replacing the planks.

There’s an old philosophical thought experiment called the Ship of Theseus. Imagine a ship that’s at sea for decades while every plank, every mast, and every sail is eventually replaced. At some point none of the original materials remain. Is it still the same ship?

I don’t really care about the philosophy.

What I care about is that the ship never stopped sailing.

That’s how I think enduring businesses are built. The mission stays the same. The customer stays the same. The reason the business exists stays the same. But every year you replace a few more planks. Better people. Better technology. Better products. Better systems. Better processes.

The business is constantly being rebuilt without ever losing its identity.

I think this idea extends well beyond business.

Your body is deferred maintenance.

Your relationships are deferred maintenance.

Your reputation is deferred maintenance.

Every meaningful part of your life is either benefiting from small, consistent investments or quietly deteriorating from small, consistent neglect. Most of the time you won’t notice either one in the moment. The effects only become obvious years later.

Great businesses rarely collapse overnight.

Great marriages don’t either.

Great health doesn’t disappear in a week.

More often than not, it’s simply the accumulated result of thousands of small decisions made over a very long period of time.

That’s why I spend so much time thinking about boring businesses. Not because they’re exciting, but because they give you the opportunity to compound. If you choose something durable and keep replacing the planks while everyone else is harvesting theirs, you’ll eventually own an asset that feels almost new while everyone else’s is slowly showing its age.

Pick durable things.

Then never stop maintaining them.