Build a Business of Consequence
And why convenient businesses are the enemy of (long-term) returns
The most important thing to reflect on as an entrepreneur is whether you’re building a business of convenience, or a business of consequence.
What do I mean by this? A business of convenience is one that has high margin, recurring revenue and low capex, but no clear explanation of why that business deserves the high valuation multiple it expects to receive as a result of these fundamentals. Is software really the best solution “market x”? Is there pricing power and leverage that comes from inserting your business at that point in the value chain which allows you to capture a disproportionate portion of the value created? It’s a business that sounds good on paper to VCs but whose strategy and approach is not based on an earned insight.
Contrast this with businesses of consequence. These business have less clear valuation mechanisms early on and often have a harder time raising capital, but the future they envision is one where their technology enables new capabilities that were previously unthinkable or, at a minimum, cost prohibitive. These businesses are, by definition, consequential.
At Also Capital we look for the latter. We work incredibly hard to understand the value drivers in an industry and the key points of leverage in that value chain. This often (but not always) draws us to vertically integrated players leveraging their technological advantage to compete with incumbents and drive compounding value for shareholders over long periods of time.
These opportunities are rare, but when you find them early one should lean in. That’s how you build businesses with $1T+ of market cap. Patience, discipline, and selectivity over long periods of time.