Resonating Returns

There are two personas that seem to get the most attention in the business world, the Operator, who has grown a large company by optimizing a superior product and/or market approach, and the Investor, whose wisdom provides an advantage for picking enough winners to make up for the losers. When you look at what makes these heroes of commerce successful, you’ll see that typically one cannot succeed without the other. But there are a few CEOs, albeit a very few, who embody both personas and because of that blend of talent, these CEOs are usually enormously successful. And, notably, they are not distracted with doing everything, they solely practice the two things that define these personas; conducting operations efficiently toward their vision, and effectively reallocating resources generated from these operations. I call these business leaders “Amplifiers”; CEO’s who have clarity into what asset, system, or routine generates cash flow, and the insight and confidence to direct more resources towards new and/or existing efforts to create “resonating returns”. 

The resonating returns created by Amplifiers are measured as increased per share value and maximized returns. This value creation can also be converted into mission value when a business’s purpose exists to do something for the greater good, such as hygiene education (Pacha Soap Co.), ending child labor and farmer exploitation (Verse Chocolate), and so on. This value is usually measured by the number of people impacted or the amount of revenue that reaches the impact target. It’s no secret that impact investments and mission-driven businesses need returns or they fail.

To create resonating returns, there is a repeatable system that Amplifiers apply to their successful businesses. First, they have a mindset for capital allocation, which requires an understanding that they are a steward of a producing asset and its resulting capital. Second, they delegate everything, knowing they can’t build an enterprise when they are consumed by making marketing, operations, sales, and HR decisions. Finally, Amplifiers understand their competitive advantage and know they need to continue investing in this advantage. It almost becomes an obsession, discovering and understanding the advantage, and thus they reinvest in it to create what Warren Buffett famously calls a “moat”. "How do you compete against a true fanatic? You can only try to build the best possible moat and continuously attempt to widen it."

Build and invest in a healthy moat and your business will become an everlasting revenue-generating machine, and it will always keep your competition a step behind. 

In addition to a capital allocation mindset, an Amplifier needs to understand how their team, process, and technology play together to create this resonating return. Here’s a quick breakdown of this triad, which I’ll go into deeper detail with future articles. 

Team

What are the roles of the team that support the Amplifier’s goal of resonating returns? The best leaders I’ve seen delegate revenue-generating activities to respective managers of each discipline, such as marketing, sales, and operations. Then the team creates a modern office of finance to surround themselves with: insight,resulting from a blended view of information from all sources; data, drilled down to the transactional level; and capital providers, providing structured visibility into the business. This creates an environment of confidence in which to make reinvestment and capital allocation decisions. 

To have insight, we need finance talent that are expert budget builders, model makers and analysis authors. These individuals should serve as a rational, reliable, and neutral source of truth. When this is practiced agnostically, we achieve credibility in our forecasting. These finance professionals should also offer detached and pragmatic analysis, driven by fact-based and unbiased data. 

This isn’t possible without enterprise-level data management and analytics. Your ability to access robust data, organize it, associate it to key performance indicators and view it easily and timely, is the difference between driving a Formula1 race car with a radio connected pit crew and steering your Dad’s station wagon using the rearview mirror.   

You now have the insight and data that unlocks performance analytics and optimization. You also have clear, consistent and timely reports, thanks to your team. This advantage not only translates to running a superior business, it also gives your business the structure and visibility needed to attract and facilitate relationships with equity investors, debt lenders and other bankers. 

The final person on your roster needs to be someone who can level the playing field with capital providers. In my opinion, capital providers speak a unique language, and the stakes are too high for me to pretend I understand it. Investment bankers typically charge 7% to translate and guide you through this maze, but only if there’s a large transactional reward. The Amplifiers are typically not selling their business (they grow and acquire businesses) so, investment bankers are not their first choice of partners. 

Some bankers will offer their expertise, but the obvious bias towards their own product can muddy the waters. To find someone who understands the capital markets and who has aligned incentivizes is like unicorn hunting, therefore a collection of people may be necessary. I often see an attorney, banker, fractional CFO (usually with an accounting background) at the table together when a deal is in the works. 

Process

Organize, clarify, then optimize. Running a business using your gut will only take you so far. The facts drive the results and no amount of fiction leads to a solution. We’ve all been in meetings with an endless amount of new priorities week after week. Leaders often talk about how much they communicate, while nothing seems to change. This rudderless feeling comes from a lack of structured activities and a vague understanding of what really matters. 

One of the best questions to ask business owners is, “does each manager know what their key activities are that contribute to the competitive advantage?” Do they even know what the company’s competitive advantage is? Does ownership? Organizing the business starts with understanding how the business makes money, how it will make more by doing the thing it does best and how it will grow when given more resources. 

Proper accounting practices are the foundation, then we start to build cashflow reporting, forecasting and data management structures on top. Once the foundation and basic structure is in place, we can begin to clarify what activities drive value, define key performance indicators, identify the competitive advantage and ultimately use these fundamentals to guide the leadership team. Business leadership will know when this practice is successful when they are free to delegate responsibilities, focus on defining the vision and allocating resources to accomplish that vision. That’s what I call organized clarity; the outcome is optimization through executing on each decision.

Technology

A common experience that all Amplifiers have is that they make fewer decisions as the business grows, but each decision has greater impact. As each decision is made, confidence becomes a necessary trait. And any philosopher will tell you, confidence isn’t a natural gift, it’s a byproduct of experience and collections of knowledge and information. A business owner borrowing experience from their leadership team and surrounding themselves with the best people, will help diminish doubt. Knowledge can be transferred from the endless amount of shared wisdom in books and curated online resources. Information/data, needs to be revealed from the business and presented in a useful format. 

Most off-the-shelf tools like QuickBooks, NetSuite, any ERP, will collect data and information, but the advantage Amplifiers have over others, is their ability to work beyond the limits and silos of these applications. To have freedom to access, blend, and combine data, a business needs to be deliberate with its data management capabilities. Note that each application or SaaS platform collects data for a specific purpose. But every company is different and can’t expect turn-key databases to meet every need for insight. To do this, a company needs to pool all available data into a flexible database, like a data-lake or data warehouse. I will expand on the reason and differences in these types of data storage in another article, but we first need to understand why a flexible database is so important.    

Proper data storage will remove the limits and boundaries inherent in off-the-shelf tools, thus unlocking the potential to view and analyze the business that supports every stakeholder. Each user, processing scheme and the general purpose of the data pool has blind spots if not allowed custom access to information. When blind spots exist, confidence wanes. Business unit leaders will hesitate, guesses will be made and decisions will feel akin to gambling. 

You may be reading this and asking yourself how this can be applied to your business. It’s not for everyone. Startups and new ventures need to figure out their business model first, then find profitability. Established business that are creating a lifestyle for their owner don’t need to challenge themselves with the goal of resonating returns. 

There is a map to accomplish resonating returns. But the journey requires ambition, grit and most of all, discipline. Amplifiers don’t react. They pay attention and perform deliberately according to a predetermined plan.

This is the first in a series of articles that will explain how to create resonating returns to become an Amplifier. Subscribe to be notified of future articles.