Think Like a Founder to Drive Business Valuation

In their recent Harvard Business Review article, “CEOs Should Think Like Founders, Not Just Managers”, authors David Kidder and John Geraci do a great job of articulating how to drive business valuation in 2018.

Business has changed a lot since 2001, and the companies with the highest valuations are led by CEOs who think like founders that continually prioritize new growth over efficiencies to their core business. Companies like Apple, Microsoft, Amazon, Alibaba, and Tencent. The market now rewards the long-term vision and continual investment in new growth over endless optimization of existing revenue streams.

To generate new growth, CEOs should stop thinking of themselves as chief managers and start thinking of themselves as refounders. Instead of focusing their energies on incremental growth through endless optimization, they instead look to leverage their company’s assets and capabilities to build new offerings, open new markets, and create next-generation solutions.

Microsoft is a great example. Since Satya Nadella became CEO in 2014, the company’s share price has nearly tripled. He challenged the company to see beyond its legacy products like Windows, and invested heavily in new technologies like AI and SaaS, purchased LinkedIn, and emphasized long-term thinking with a test-and-learn approach, while obsessing over customer satisfaction. Microsoft has regained its place on the top-five market cap list.

Kidder and Geraci give five actions that leaders can take to move from a manager mindset to a refounder one.

Shift Your Mindset

Mature businesses think in terms of total addressable markets (TAM). Refounders think in terms of total addressable problems (TAP). A TAP view allows you to discover future markets instead of playing only in developed ones.

Don’t Seek Consensus

Bigger enterprises look to gain consensus as a way of minimizing the risk of failure. Refounders know that new opportunities lie outside of the realm of consensus. If something is already at consensus, then money will have already flooded in and the profit opportunity is gone.

Embrace Productive Failure

Failure is a tool for getting to the truth. Productive failure is about moving forward quickly, understanding that you will be wrong part of the time, and using those learnings to course correct toward success. It’s less about being right, and more about learning the right path forward.

(The Value Proposition Canvas and Business Model Canvas from Strategyzer

are valuable tools to articulate and iterate toward successful growth strategies.)

Use New Metrics

New initiatives are hypotheses about future businesses. Applying standards for existing business to these hypotheses will kill new initiatives most every time. Metrics for new businesses should focus on growth, user engagement, and user satisfaction. Customer love is the leading indicator of success.

Develop a Portfolio Strategy

Not every growth initiative is a winner. And you’ll learn that early in each development cycle with a test-and-learn approach. What’s required is thinking like a venture capitalist and articulating a solid growth thesis across a portfolio of opportunities. This approach not only reveals the homerun, but supplies a pipeline of regular sustained successes.

Download the full HBR article here.