How to Allocate People and Capital to Maximize Enterprise Value
Originally a thread on X/Twitter:
As a Founder, one of the most important things you do every day is allocate people and capital because they don’t allocate themselves.
Becoming a world class allocator can kink the curve on outcomes so building this skill matters…..a lot! A few thoughts:
2/12: The two main resources that CEOs have at their disposal are people and capital.
The CEO’s job is to transform these resources into the three major drivers of enterprise value:
Learnings, Capabilities and Growth.
3/12: Learnings
A startup is a sub-scale company born from a Founder’s dream to solve a problem in a unique way. The Founder’s initial solution has at its core a set of assumptions that have yet to be proven and over time these assumptions are battle tested IRL.
4/12: Structured tests generate learnings. Every new learning is either proof that a startup is on the right path (positive proof) or proof that the market reality and the startup’s assumptions aren’t in sync (anti-proof). Positive proof feels good. Anti-proof doesn’t.
5/12: Skilled allocators make sure that they maximize the learnings for the resources invested. Great investments in “learnings” include:
Pricing elasticity, product virality, marketing messages and demand for ancillary products/services
6/12: Capabilities
Most startups begin as business plans or PowerPoint decks. They’re ideas waiting to be willed into existence by the Founder. Over time, people and capital are invested to build the capabilities that ultimately deliver the solution that the Founder envisioned.
7/12: Skilled allocators make sure that they maximize the capabilities that are built for the resources invested. Great investments in “capabilities” include:
Internal tools, customer facing apps/websites and charters that give a startup “permission” to do business.
8/12: Growth
Scale matters and the easiest/most obvious way to increase enterprise value is to scale your customer base. “Climbing the Relevance Curve” is a concept that can be used to frame scale. “Relevancy” is a concept with two simple questions at its core:
9/12: Question 1: Does anyone care?
Ask and answer the question: “Who would be significantly hurt if the startup were to go away tomorrow?”
If the answer is “nobody”, then your startup is irrelevant and has a lot of proving to do before it’s “at scale” and “durable”.
10/12: Question 2: How bad is the burn?
Ask and answer the question: “How close is the company to making money?”
There’s a fine line between a company being an asset vs being a liability and many Founders and Investors are too optimistic about where that line is.
11/12: Skilled allocators make sure that they maximize high quality growth for the resources invested. Great investments in “growth” include:
Growing the sales organization, signing up new channel partners, onboarding paying customers and upselling additional products/services.
12/12: The TL;DR: If a Founder is a good allocator of people and capital, then learnings, capabilities and growth work synergistically to generate enterprise value.
The converse is also true. A startup that’s burning cash can quickly become a dumpster fire that nobody wants.