The importance of lasting value

Umair wrote a post earlier this week entitled How to Build a Next-Gen Business Now.  His central point is a rework of one he has oft made before – have good corporate DNA and focus on adding real value to the world.  A bit more on that in a moment, but before then I want to bring out a couple of other points.

Firstly his analysis of the current meltdown on Wall Street as a problem of institutional decay, or bad DNA:

Investment banks failed not just as businesses, but as financial institutions that were supposedly built to last. It was ultimately how they were organized and managed as economic institutions – poor incentives, near-total opacity, zero responsibility, absolute myopia – that was the problem. The rot was in their DNA, in their institutional makeup, not in their strategies or business models.

Secondly, on the narrowness of market cap as a measure of success:

When your market cap … can be utterly vaporized in a matter of days, it’s a stark reminder that shareholder value is a videogame – and it is human outcomes that make work meaningful.

And finally, his list of what it will take for the system to right itself:

We need no less than better corporate governance, a working shareholder democracy, a recognition of what capital really is (and isn’t), radically more enduring incentives – aligned with outcomes that actually matter to people – the capacity to trust and be trusted, more accurate and timely reporting, strategy that creates authentic value instead of just shifts numbers around, and business models that can yield sustainable growth.

When it comes to startups and small companies generally I have been saying for a while now that businesses which have a real passion to change some aspect of the world for the better at their core (i.e. in Umair’s parlance have good DNA) have a better chance of success than those that don’t.  But then I always qualify that by saying this sort of passion helps, but it is neither a necessary nor sufficient quality for success.  However, as this crisis unfolds I am thinking that it is more and more important, so much so that I’m starting to wonder if I should make seeking out these sorts of companies a more explicit part of my strategy.  Certainly I will attach increased value to companies that don’t just think about themselves in terms of share price appreciation.

  • I agree with Umair that good DNA is crucial to have a long term successful business and I think it would be an excellent idea to seek out these companies as part of your investment strategy.

    I am disappointed in the companies that were successful at TechCrunch50, DEMO and seedcamp this year. Not because I don’t think they can’t be successful or might be useful, but they are nibbling at problems around the edges. Is Yammer really going to produce an order of magnitude in productivity benefits to companies? I don’t think so. Its benefit for companies lies in giving them control over the conversation.

    Somewhat preachy sorry, but I share Umair’s frustration. The turbulence and chaos of the current climate is probably the best time to companies with good DNA to solve real problems as the barriers for these companies are weakened. It is much easier for these companies to establish themselves, upend the status quo and make real inroads to the problem those companies are trying to solve.

  • I agree with Umair that good DNA is crucial to have a long term successful business and I think it would be an excellent idea to seek out these companies as part of your investment strategy.

    I am disappointed in the companies that were successful at TechCrunch50, DEMO and seedcamp this year. Not because I don’t think they can’t be successful or might be useful, but they are nibbling at problems around the edges. Is Yammer really going to produce an order of magnitude in productivity benefits to companies? I don’t think so. Its benefit for companies lies in giving them control over the conversation.

    Somewhat preachy sorry, but I share Umair’s frustration. The turbulence and chaos of the current climate is probably the best time to companies with good DNA to solve real problems as the barriers for these companies are weakened. It is much easier for these companies to establish themselves, upend the status quo and make real inroads to the problem those companies are trying to solve.

  • nic

    Hi Simon – I share the thought, and we did have a couple of companies that more obviously have strong DNA in the mix at Seedcamp, but ultimately the winners were felt to have better commercial prospects – which is often the case. Nobody will win if investment discipline is lost due to our desire to embrace the sort of shifts I have been writing about.

  • nic

    Hi Simon – I share the thought, and we did have a couple of companies that more obviously have strong DNA in the mix at Seedcamp, but ultimately the winners were felt to have better commercial prospects – which is often the case. Nobody will win if investment discipline is lost due to our desire to embrace the sort of shifts I have been writing about.

  • Hoover

    Hello. I take issue with some of the post you link to. I don’t think investment banks failed. For years they succeeded in making markets more liquid.

    To my mind, that’s a success. It releases capital which can be used, among other things, for lending to startups.

    Money’s a commodity. Bank lending is money rental. If you can supply people who want to hire a car with a cheaper rate in a more convenient location, so much the better. Likewise if you can supply people with money at a cheaper rate, you open up opportunities for them to do interesting things, if they’re able.

    Other criticisms are valid – particularly the problem of transparency…

    Your point about funding companies that aim to change the world for the better is interesting. It’s potentially so complex I don’t quite know how to tackle it.

    We didn’t always see a distinction between making profits and bettering the world. Keynes quotes the Society for Promoting Christian Knowledge in 1850: “It is curious to observe how, through the wise and beneficent arrangement of Providence, men thus do the greatest service to the public, when they are thinking of nothing but their own gain.”

    I wonder if we should think otherwise nowadays…

    Anyway. Thanks for the interesting questions you raise in your blog.

  • Hoover

    Hello. I take issue with some of the post you link to. I don’t think investment banks failed. For years they succeeded in making markets more liquid.

    To my mind, that’s a success. It releases capital which can be used, among other things, for lending to startups.

    Money’s a commodity. Bank lending is money rental. If you can supply people who want to hire a car with a cheaper rate in a more convenient location, so much the better. Likewise if you can supply people with money at a cheaper rate, you open up opportunities for them to do interesting things, if they’re able.

    Other criticisms are valid – particularly the problem of transparency…

    Your point about funding companies that aim to change the world for the better is interesting. It’s potentially so complex I don’t quite know how to tackle it.

    We didn’t always see a distinction between making profits and bettering the world. Keynes quotes the Society for Promoting Christian Knowledge in 1850: “It is curious to observe how, through the wise and beneficent arrangement of Providence, men thus do the greatest service to the public, when they are thinking of nothing but their own gain.”

    I wonder if we should think otherwise nowadays…

    Anyway. Thanks for the interesting questions you raise in your blog.

  • nic

    Tks Hoover. I guess I feel that the asset bubbles we have seen in last few years have ultimately destroyed value and that the financial system (aka banks) has facilitated them rather than mitigated against them.

    To your second point – I am a believer in market forces, but they don’t work well on their own. Social mores are an important part of defining what is acceptable and encouraged in business – and I think they will become more so as people choose to buy from companies they perceive as having a net positive impact on the world – beyond simple shareholder value creation.

  • nic

    Tks Hoover. I guess I feel that the asset bubbles we have seen in last few years have ultimately destroyed value and that the financial system (aka banks) has facilitated them rather than mitigated against them.

    To your second point – I am a believer in market forces, but they don’t work well on their own. Social mores are an important part of defining what is acceptable and encouraged in business – and I think they will become more so as people choose to buy from companies they perceive as having a net positive impact on the world – beyond simple shareholder value creation.