Investing -Do you have a champion in your stable?
The energy transition has generated considerable interest in new energies, new ideas and consequently new companies. With virtually every major Oil and Gas company setting up or expanding its own ventures group, it has never been a better time to start a company. There is money, and lots of choice. So who do you chose to accompany you?
For investors however, the game is getting harder. Whilst for some, the corporate objective may only to be to “not miss-out,” others see this as a way to reposition themselves in a fast-evolving market. Not only do you have peer competition, but you also have specialized regional organization such as Aberdeen’s Net Zero Centre offering facilities, support and coaching to companies willing to move there. The competition has never been so fierce to entice the future champions, so do you have what it takes to back a winner?
Most companies have gone in search of the best business and investment people, and supplemented this with excellent domain technical skill from within their own organization. However these teams tend to be fairly small, and consequently a fair amount of multi-tasking takes place, and investment managers can come from either side of the finance/technical divide. So, you have the technical expertise and expert finance knowledge; surely this is enough to pick a winner; and indeed these are critical for picking a potential champion!.
Seeing as we are using equine analogies, let’s think about what it takes to groom a winning racehorse. You’ve picked a horse that comes from great parents, and it shows the potential from a young age. You have great facilities and feed it well and smartly…so you should have a winner…right?
Wrong!. The key word is grooming as any successful trainer knows. You have to develop the natural potential to win a race, NOT to simply run fast.
So how do we groom a champion in business?. Just as a horse needs to learn to win a race, a company needs to learn how to develop commercially attractive products and services. This is however where often they fall into the Investor’s knowledge gap; and where they most need help.
Unfortunately, technical or financial specialists rarely have the direct commercial experience needed to refine a winner. They’ve probably never sat in a sales call, or tried to identify a compelling need for which their technology can leverage competitive advantage. Our finance experts have never had to struggle with identifying the market rate for their offerings, and anticipating their competitor’s next move. Simply put, many investment teams do not have the requisite skills and experience to groom a champion.
To compound this as you move your investment managers around in order to keep them from becoming too familiar with their portfolio companies, you risk lurching from one extreme (technical) to the other (financial) comfort zone. So how can you strengthen the commercial support you provide to your potential winners in a consistent manner?. Essentially, we see two main actions.
Targeted training of the team to extend their comfort zones. For example a technically strong investment manager can develop the skills need to feel comfortable challenging the direction in which technology is being developed towards a more commercially astute form. Conversely a financial person can develop the skills to go beyond finance and P&Ls to look at market conditions, and challenge whether a portfolio company is being too optimistic or conversely pessimistic about pricing and market potential. You’re not going to make a technical expert into a financial star, or visa versa, so aim to reduce the gap.
The second element is to develop consistency across the team in order to reduce the variation within the team. In other words bridge the gap. The use of common assessment tools and terminology is a great start to achieving this.
It is naturally tempting to simply say that it’s the portfolio companies who need the training, and indeed this will always be of help to them. However, if you are going to develop your reputation for grooming winners, the process starts at home.
Feeling lost?..Help is at hand. We at TOG Conseil are experienced in developing the customized commercial training your team needs, and has developed intuitive tools to help ask the right questions and track this all important consistency across the team. Leave us a message on this website, and we’ll get back to you.
