Investor Perspectives: Seed, Grow and Harvest

4 min read

When it comes to investors’ perspectives, money is the immediate attribute that comes to most people’s minds. But money can’t buy time—and growing and developing a business may take a lot of time before the “sweet fruits” of an enterprise can be harvested. As such, it is important to develop a far-sighted perspective on business development and explore transformation options early, taking into account current and future trends within the company’s economic and social environments.

In the context of the Transformation Board, the investors’ perspective reflects the owners’ intentions and expectations related to a business. These aims can change over time and may profoundly alter a company’s direction. For example: start-up entrepreneurs may recognize that the purpose of founding a company may not be achieved without sufficient profitability, family-owned businesses may face a change of direction when younger, less risk-averse generations are “onboarding,” or shareholder structures may shift as new institutional investors enter with much shorter return-on-investment timelines in mind.

Business transformation initiatives can only succeed, however, if they align with investors’ perspectives. Managers and executives spearheading the change of a business’s direction rarely achieve a successful transition if their strategy lacks support from the company’s owners. As such, it is vital for corporate disruptors to develop a transformation vision, roadmap, and practical approach that integrates the investor perspective and delivers a comprehensive picture and story of the transformation journey.

Factors Influencing Investors’ Perspectives

Typically, investors base their decisions on the following four factors:

Purpose – Most reasonably successful businesses have been founded by entrepreneurs that either had an innovative idea about how to improve the quality of life for a certain clientele, or started off with a passion for a particular subject that drove them to excel in their business environment. Growing rich fast rarely suffices as an adequate purpose, although financial aspects are an essential factor contributing to the investors’ perspective. But true purpose beyond profit can play a major role in informing investor decisions.

Financials – No business, not even NGOs with a dominant charitable purpose, can operate sustainably without a strong focus on healthy financials. The overall financial situation of an organization in relation to investor expectations may thus trigger, drive, or limit transformation initiatives and associated financial investments.

Time – Investor interests may differ significantly in regards to the timeline and timing of a business transformation. Institutional investors might prefer to restructure an organization to cash-in on short-term profitability over investing into the long-term sustainability of the business model. Or they may want to develop a transformation vision to enhance the long-term perspective and thus increase their share value. The degree to which these decisions align with investors’ perspectives for the business is highly influential in determining whether the goal and timing of a transformation initiative is supported or not.

Risk – The amount of (financial) risk investors are prepared to accept is the fourth influential factor determining their levels of engagement in—and support for—the transformation journey. But this risk perspective is not limited to transformation itself. Investors must assess the risks associated with the change of direction against the risks of continuing as is. Often the potential risks of a transformation are overstated while the risks of remaining static are largely underestimated.

Investors Typically Favor One of Five Business Development Approaches

Depending on personal positions related to the four influential factors, investors typically prefer one of five following business strategies:

Seeding – Putting money and effort into developing new solutions requires investors who are open to creativity and innovation, and accept the risk that the nucleus may not germinate. They must possess a long-term perspective, as the period from seeding to harvesting is relatively long. However, seeding may make for a highly attractive financial perspective as initial costs may be low and the return on investment may be significant.

Growing – Growth-oriented investors tend to be ambitious but slightly risk-averse. They typically invest their money in technologies and business models that demonstrate—at least to a certain degree—value and promise. They tend to be open to enhancing their business by continuous development and optimization of their value proposition and customer base.

Cultivating – Owners following a strategy of cultivating their business typically do have a long-term perspective and are generally risk-averse. The focus on nurturing, fostering, and protecting their business rather than re-inventing it—unless the investor is a fan of cross-breeding.

Cross-breeding – This is an investor’s approach that combines the best of two or more worlds in order to develop and offer entirely new solutions, products, and services. These types of investors are generally innovative and enjoy thinking broadly and creatively. Consider Apple (not apples!), for example, who not only developed a “smart” phone but created an entire eco-system around mobile information and entertainment.

Harvesting – Investors seeking a harvesting approach do not pursue a long-term business strategy. Their interest is in maximizing their own short-term profits, either by optimizing the business’ efficiency or increasing their stock value to exit from the investment. In the latter case, the investor typically only supports a transformation strategy if it yields immediate cost savings or provides for enough fantasy to convince other investors to step-in.

So, when assessing, exploring, designing, or implementing your company’s specific transformation strategy, be sure to take your owners and shareholders perspectives into consideration. Ideally, align your proposed approach closely with their interests to leverage their support and commitment.

Our Transformation Board can help you develop, communicate, and execute a comprehensive transformation picture that reflects your investors’ perspectives.

The tool provides a comprehensive structure to develop, evaluate, facilitate, and improve your transformation roadmap in line with your transformation vision. When using it to evaluate the economic environment, ask yourself the following questions:

  • How does the current situation of the company relate to its owners’ attitude towards purpose, financials, timelines, and risks?
  • Which aspects of a potential transformation approach align with investors’ perspectives and which run counter to their interests?
  • Which category of investor do the company’s owners belong to? Are there varying interests at stake?

To learn more about the Transformation Board’s other building blocks, check out the blog on our website, or participate in one of our upcoming training seminars.

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