Research report
Companies worldwide are faced with a conundrum of swiftly shortening life spans especially in light of multiple converging crises. Longevity is crucial for any owner or steward to build up a business to its full potential and deliver on its perpetual value which accounts for nearly 70% of its full value.
With “perpetual value” we mean an endless stream of cash flows that conventional finance assumes the company will generate starting 5 years from now into the future (and constitute nearly 70% of a typical company’s value). Company owners and managers today do not have any system to test the viability of this large component of value and its resilience leading to a higher incidence of corporate failures and missteps. Shortening life spans are creating havoc to society, stakeholders and shareholders. Further, there is no major consulting firm which has chosen this vexing area as their major area of focus .
We are particularly keen to focus on family business owners in the first gen or multigenerational who put a high emphasis on longevity. There could also be visionary CEOs and boards who symapthise with our view on prospering for long or board memebers who sense non-linear risk but have no way to express it in concrete terms.
What do we want owners to do?
Owners have a strong intuition that there are subtle capabilities like purpose, brand, culture and creativity which gives their firms a disproportionate advantage in sustenance of economic returns. We call these subtle capabilities (i.e. purpose, brand, culture and creativity) “scarce capital”, as they are very valuable assets that are ’scarce’ because they cannot be bought on the market but have to be created and nurtured over long periods of time. Our thesis is that this scarce capital is responsible for generating the “perpetuity value” of companies – in other words 70% of a company’s value.However, many owners are not able to showcase the long run economic payoffs of focussing on this scarce capital and consequently when they leave or pass the baton the intuitive system goes with them leaving the company rudderless. Further, owners are aware that short-termism is on the rise and many management practices and conventionally used financial ratios can be easily used to erode Scrace Capital stealthily. Hence, owners would be keen to have a system which resides in their own hands for a regular inspection and course correction rather than use operational information and piece the jigsaw together.
We want owners to create an informed distinction between Wealth creation processes Vs Quarter to Quarter delivering numbers so as to surface longevity risks currently hidden within the firm and nip them in the bud before they express in non-linear ways.
What is the LW personality in this interaction?
LW will adopt a highly selective model for engagement with the ‘right owners’. Owners will need to demonstrate their strength of intent from an engagement and likewise LW will provide non-obligatory preparatory sessions to build trust in the approach and tools.