Investing Into The Next S-Curve
Why VCs Should View Analytics as an Insurance Policy
For two decades, I have worked with companies chasing the next S-curve in their growth cycle. I was late to the game. Corporations have been at it since it was first popularized after the second world war. Pursuit of that curve has created its own cottage industry. Management consultants line-up around the block with ten point plans and proprietary methodologies.
The problem is very few have a track record of any success. Many actually have records littered with failure. Most come with a robust price tag. And sadly, all are really too late to the game. Investing in the second S-curve needs to start when you are at the bottom of the first curve, not the top.
CEO’s Won’t Invest In Insurance And Probably Shouldn’t
Entreprenuers and CEOs are playing the growth game and they are playing it hard. Every dollar they acquire is spent on it. Every minute of their day that isn’t spent on raising capital is spent on growth. This is perfectly inline with both the incentives and aspirations of most of these folks. The vast majority will cash out long before the war for the second S-curve begins.
It is also inline with what their investors are asking of them. Growth equals higher valuation and most investors are more concerned with tomorrow’s dollar than next year’s headaches. CEO’s are driven to deliver growth, both personally and by their superiors.
All of this does not bode well for the early investment need to assure the development of a solid analytic program. A program that delivers insight, discourages poor decisions, and positions the company to leverage the portfolio and assets they have created by the end of the that first growth window is unlikely when it goes unfunded in lieu of the next marketing opportunity, partnership, or branding event.
It is a lot like life or health insurance. What twenty-something has interest in those? They have little in the bank. Their whole life is ahead of them and it is a struggle just to pay the bills. Meanwhile, the insurance policy is protecting against an issue they are not struggling with, at least not yet. But likely, not at all.
But VC’s Should
Venture Capitalists are older and should be wiser. While they might cash out at the top of the first S-curve, they are far more likely than early CEO’s and founders to still have a sizable stake in the company when that first S-curve flattens. VC’s are 40, 50, and 60-somethings — they should know the value and piece of mind of a solid insurance policy. Sadly, that is true of far too few.
Maybe it is that Masters of the Universe mentality? Perhaps it is a gender bias? VC’s are more often men and men don’t value health care, much less health insurance nearly as much as women. Perhaps it is timing? Most companies won’t survive the first S-curve, much less the second. More likely — it is because analytics is rarely framed or priced as an insurance investment!
So what would an analytic insurance policy look like?
The most valid analogy would be something like your healthcare coverage plan or the one you use for your child’s orthodontist. It is a plan you pay into early with the expectation of it saving you a lot of money down the line.
It begins with early investments in data collection, data storage, and business model documentation. These are three things your start-up/s are probably not doing or at least not doing well. This is especially true of content and product companies. Service-based companies are often more committed, but often far less efficient.
Step two should involve regular reporting and periodic health checks. A good analytic partner who is collecting the right things, storing them the right way, and knows your business- can provide these things at fractional costs and phenomenal efficiency.
Eventually, you need to cash in. As your company begins to top over the current S-curve, you will want to collect on the policy you’ve been paying into. For starters, all that data, tracking, and documentation should help if you are looking to sell or bring in additional investment. But this is really about the next S-curve and that should be easy enough to deliver on.
At this point, your analytic insurance provider should bring you a package that defines your business, your customer-base/audience, their needs, their demographics, and the pain points that remain unsolved. Often you will find they are hacking your products and service to try to solve them already, but armed with insight and intelligence you will be able to solve them more directly.
Whether this works out to complementary products or markets, strategic acquisitions or partnerships, or other innovation- this is the payoff for years of minor investment. How minor? It depends greatly on your business and your yields, but 1% of revenue is a solid placeholder. It might be more appropriate to base it on sales or other volumes. Regardless, you will likely offset most of the cost in other savings like compliance, audit, legal, and IT infrastructure.
This is just a short article and a small sample of the possibilities of a well adopting and investing in well-managed analytic coverage. More articles are coming soon. If this one got you thinking, please recommend it ❤.
Corsair’s Analytics provides a truly disruptive model for business enablement and value generation. Connecting experienced professionals to passionate analysts utilizing innovative technology, we deliver the most effective and efficient consulting model. We augment this with a unique style of partnership and pricing to guarantee unprecedented value and flexibility for our partners.
