Author: Tom Koor

Tom Koor

My regular update regarding my learnings and unlearnings

The purpose of this article is to share my learnings and unlearnings, with the expectation that some will be of value to you. This email was 100% written by me – not by AI.  When you send me an email, my response is 100% written by me.

My biggest learnings in the past three months:

  • The three greatest risks to your company’s success and survival are the talent of: the controlling shareholders, the board of directors, and the CEO/C-Suite. The talent pool as a whole must be competitive differentiated.
  • It is impossible to predict or forecast the future. Scenario planning helps your company prepare for the unexpected. Basing all your decisions, plans, and actions on a single, assumed to be perfect, forecast will likely result in failure.
  • Your business strategy is about making an integrated set of choices that compels desired customer and ecosystem member actions. Your business strategy, company purpose, and North Star metric are all inter-related.
  • Most companies will: fail, disappear, or provide poor returns to their investors.
  • The core reason that employees and investors will support you is because they understand “What’s in it for them”.

Sharing my learnings

My website (https://koorandassociates.org/) contains my points-of-view regarding key issues and questions regarding value creation and growth in for-profit businesses. Each point-of-view is a brief article designed to enable discussion among founders, owners, shareholders, investors, CEOs, boards of directors, and advisory boards. I do not address not-for-profits, government, or other non-profit oriented organizations.

 Below are links to my website containing: new and revised points-of-view since my last update in March.

Links to my points-of-view articles:

What is your business strategy? V2

Your business strategy is about making an integrated set of choices that compels desired customer and ecosystem member actions. Your business strategy, company purpose, and North Star metric are all inter-related.

https://koorandassociates.org/strategy-and-strategic-planning/what-is-your-business-strategy/

What are the three greatest risks to your company?

The three greatest risks to your company’s success and survival are the talent of: the controlling shareholders, the board of directors, and the CEO/C-Suite.

The talent as a whole must be competitively differentiated.  This does not mean that every single person in the talent pool must be better than all of the competition. Company success requires a team.

https://koorandassociates.org/avoiding-business-failure/what-are-the-three-greatest-risks-to-your-company/

Your company will fail. V2

Most companies will: fail, disappear, or provide poor returns to their investors.

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

Why should employees and investors support you?

The core reason for support is that people understand “what’s in it for them”. Support is emotional.

https://koorandassociates.org/creating-business-value/why-should-employees-and-investors-support-you/

Scenario planning – what is it?

It is impossible to predict or forecast the future.

Scenario planning is a process to prepare to succeed in a broad range of futures. It is not an attempt to predict a single outcome.

https://koorandassociates.org/strategy-and-strategic-planning/scenario-planning-what-is-it/

What is a business model canvas? V4

The purpose of your business model canvas is to provide an easy to understand one page framework which communicates who your customers are, why they buy from you, and how you make a profit

https://koorandassociates.org/the-startup-journey/what-is-a-business-model/

Personal Update:

  • Preparing for this summer’s startup mentoring at the University of Toronto Department of Engineering. The approach was based on weekly advisory board meetings.
  • Continued as Board Director at a private company.
  • Continued as a Patient Family Advisor at Sunnybrook Hospital.
  • Continued my long-term fundraising for the Geoff Carr Fellowship at Lupus Ontario. Over the past 18 years family, friends, neighbours, and colleagues have contributed almost $270,000. You can use the donation link later in this update
  • Continued with the Angel Capital Association in the US.
  • Continued to share with you, and on my website, some of what I’ve learned and unlearned, with the intent that some of you will find value. The learnings and unlearnings are applicable to any size company, ranging from early-stage startups to large global enterprises.

I continue to focus my time to maximize the value and impact of my two professional purposes: #1 Enabling current and emerging business leaders to succeed, #2 Enabling business leaders to have a positive impact on society.

Tom Koor

Why should employees and investors support you?

Why should employees and investors support you?

What is the purpose of this article?

This article enables a discussion about to maintain, or gain, the support of your employees and investors.

The audience for this article includes: controlling shareholders, the board of directors, and C-Suite.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: https://koorandassociates.org/wp-content/uploads/2025/03/why-should-employees-and-investors-support-you.pdf

What are the critical learnings in this article?

  1. The core reason for support is that people understand “what’s in it for them”.
  2. Support is emotional.
  3. Support has become much harder to get in today’s world.

#1 What is the core reason employees and investors will support you?

  1. They understand “what’s in it for me” and they want that. Negative reasons for support (e.g. do this or you will be fired) create limited support.
  2. Support is emotional and requires an emotional connection.
  3. Lack of support or active resistance is also emotional.

#2 What are the pre-requisites for getting support?

  1. Employees and investors must understand and trust what you’re saying.
  2. Trust must be earned.  It starts with understanding your audience by listening to them.  You need to understand, and demonstrate that you understand, their problem, needs, values & morals, and emotions.
  3. People need to perceive that you understand the world from their perspective.
  4. They need to trust the facts that you are sharing.
  5. Understanding requires that you use words and concepts which the audience understands.
  6. Often people expect that their values, morals, and ethics are the same as yours.  And that they and you have a common purpose.

#3 What destroys support or prevents support?

  1. Your audience does not understand the words and concepts you are using.
  2. They don’t believe your facts.
  3. They think you are misleading, deceiving, or lying to them.
  4. They think you neither understand nor care about them.
  5. They perceive that you are not listening to them.
  6. You are not providing value to them or helping them understand “what’s in in for them”.

#4 What are your challenges in getting support?

  1. Society does not trust its leaders and institutions. 1
  2. People don’t agree on what the facts are.  The world is swamped with misinformation and lies.  Groups of people passionately believe that they know the facts and that others are wrong.
  3. People have a broad range of values, morals, and ethics.
  4. We live in a world where massive changes happen more often.  The natural reaction to change is resistance.
  5. It can be very hard to explain to people why they should support having their livelihoods destroyed e.g. jobs disappearing due to offshoring.

What are your next steps?

  1. Define the words/concepts you’re using, in a glossary.  I’ve seen major confusion when the same words mean different things to different people.
  2. Prepare your plan, which addresses the points in #1 to #4 above.

Footnotes

1 “Society does not trust its leaders and institutions” Koor and Associates website

Society does not trust its leaders and institutions. V6

What further reading should you do?

“Managing the people aspects of supervisory change” An article I wrote for the Toronto Centre which trains financial services regulators around the worl.https://stage.torontocentre.org/media/acfupload/Managing_the_People_Aspects_of_Supervisory_Change_Updated_Links_copy_1.pdf

Tom Koor

Scenario planning – what is it?

Scenario planning – what is it?

What is the purpose of this article?

This article enables a discussion about scenario planning and why it’s critical to your company’s success and survival.

The audience for this article includes: boards of directors, CEOs, the C-Suite, and investors.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: https://koorandassociates.org/wp-content/uploads/2025/03/scenario-planning-what-is-it.pdf

What are the critical learnings in this article?

  1. It is impossible to predict or forecast the future.
  2. Scenario planning is a process to prepare to succeed in a broad range of futures. It is not an attempt to predict a single outcome.
  3. Your strategy is one component of scenario planning.
  4. Scenario planning is not enough for success and survival. Your need a competitively differentiated talent pool (board of directors, CEO, C-Suite, etc.)

Why do you need scenario planning?

  1. It is impossible to predict or forecast the future.
  2. Scenario planning helps your company prepare for the unexpected.
  3. Basing all your decisions, plans and actions on a single, assumed to be perfect, forecast will likely result in failure.
  4. An unknown future provides you with lots of opportunities as well as risks.
  5. Future success depends on your company responding quicker and better than your competition.
  6. Scenario planning helps to reduce the natural biases that all decision makers have.

In 2019, who could have predicted:

  1. A 2020 global pandemic with massive economic impacts.
  2. In early 2022 the largest land war in Europe since WW II started
  3. Nov 30, 2022 ChatGPT was announced, and the Generative AI revolution began
  4. In late 2023 large scale war began in the middle east.
  5. Jan 20, 2025 President Trump was inaugurated.  Massive changes within the US Government and around the world began immediately.

The future is a black swan. 

What is scenario planning?

  1. Scenario planning is a process to prepare to succeed in a broad range of futures. It is not an attempt to predict a single outcome.
  2. Your strategy is one component of scenario planning.
  3. Without scenario planning, you are hoping that you have guessed the right strategy for the unknown future.

The scenario planning  process has three stages

Stage 1 Prepare the initial set of scenarios

  1. This is a one-time event.
  2. There are a minimum of three scenarios: 1) the base case which represents your current strategy, strategic plan, and related plans; 2) your company fails in the future; 3) your company is a wild success in the future.

Stage 2 Monitor the external and internal factors of your scenarios on an ongoing basis

  1. Has anything happened which requires your strategy to change?
  2. Has anything happened which requires updates to your scenarios, including your base case which represents your strategy and strategic plan

Stage 3 Update your scenarios.

  1. You may need to create new ones

What is the definition of a scenario?

A scenario is a point-in-time description of your company and its environment. The description may include:

#1 External Components e.g.

  1. Key members of your company’s ecosystem E.g. competitors, suppliers, partners, politicians and regulators,
  2. Technology
  3. The economy
  4. The talent pool
  5. Demographics
  6. Social upheaval – from local to global.  This includes war.
  7. Climate change

# 2 Internal components e.g.

  1. The talent pool – board of directors, CEO, C-Suite, etc.
  2. Processes
  3. Technology
  4. Knowledge
  5. The ability or inability to quickly learn and change

#3 4 different scopes to consider

  1. What will the world look like?
  2. What will the countries you operate in look like?
  3. What will your marketplace look like?
  4. What will your company look like?

#4 A scenario has multiple points in time e.g.

  1. Today The current situation
  2. Year by year into the future.
  3. The second last year is the final year of your value creation plan.
  4. The last year is at least 10 years out.

#5 Trigger points

  1. You may identify changes in external and internal factor which will require immediate revisions to your scenario.

What is a very simple example of a scenario?

Appendix A has an illustration of a very simple scenario, created by a one sentence prompt to the free version ChatGPT.

Why will one of your target years be 10+ years?

Many organizations make decisions and take actions where the outcome can be more 10+ years. Some examples include:

  1. Some Japanese companies look out 100 years to see if they will survive and prosper
  2. Some organizations start their talent recruit in school with students as early as 10 years old. One example of why do this is because many students start to lose interest in STEM subjects between the ages of 11 and 15.
  3. Private Equity firms are often focused on maximizing value creation by the years 10-12.
  4. New planes, natural resources development, and other investments may take more than 10 years to pay off.
  5. Demographic and immigration change can take a long time to transform a country.
  6. Families with large wealth can have a multi-generational perspective.
  7. Government policy and legislation can have a long-term impact.
  8. The appointment of supreme court judges can transform a country over the long-term.
  9. Hiring permanent employees may be a long-term commitment.

Is scenario planning enough to ensure your future business success?

  1. Scenario planning is not enough.
  2. You need the right talent (board of directors, CEO, C-Suite, etc.) to be able to make decisions and execute more quickly and effectively than the competition.
  3. Your team of talent needs to be competitively differentiated.  This does not mean that every single person is the best in the world.

What further reading should you do?

  1. “Your company will fail” Most companies will fail, disappear, or provide poor investor returns.

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

What is your business strategy?

https://koorandassociates.org/strategy-and-strategic-planning/what-is-your-business-strategy/

What are your next steps?

#1 Define the words/concepts you’re using, in a glossary.  I’ve seen major confusion when the same words mean different things to different people.

#2 Outline the three stages of scenario planning.

#3 Identify who is develops the scenarios.  Consider using 3rd parties (such as MBA interns) to create success and failure scenarios.

#4 Complete Stage 1 – creation of three scenarios – in one week.

#5 Launch stages 2 and 3.

#6 Learn and improve on an ongoing basis.

Appendix A scenario created by the free version of ChatGPT

The intent of this simple scenario is to generate discussion.  The scenario is not intended to be accurate in terms of the cause-and-effect relationships. I am not recommending the use of ChatGPT vs other AI tools.

My prompt to ChatGPT

Create a scenario for a hypothetical Canadian bank called OldBank, in which the bank fails in 2030. Include: financial metrics, political changes around the world, and technology developments from China and Africa. List what happens year by year, starting with 2025

The response from ChatGPT

The Collapse of OldBank: A Year-by-Year Breakdown (2025–2030)

OldBank, a once-stable Canadian financial institution with deep roots in conservative banking, faces a dramatic collapse by 2030 due to a combination of poor financial management, political instability, and disruptive technological shifts from China and Africa.

2025: Early Signs of Strain

  • Financial Metrics:
    • OldBank reports a 3% decline in profits due to higher-than-expected loan defaults in the commercial real estate sector.
    • Rising interest rates cause mortgage delinquencies to rise by 18% year-over-year.
    • The bank’s stock price drops 12% over the year, amid investor concerns over its exposure to high-risk sectors.
  • Political & Global Economic Changes:
    • The U.S. Federal Reserve maintains high interest rates, slowing global economic growth and increasing borrowing costs worldwide.
    • Canada’s federal government tightens banking regulations in response to growing concerns over housing market instability.
  • Technological Developments (China & Africa):
    • China’s central bank launches a global digital yuan initiative, allowing international trade to bypass traditional banking systems.
    • African fintech companies introduce blockchain-based banking networks, drastically reducing reliance on Western financial institutions.

2026: Increased Competition & Technology Disruptions

  • Financial Metrics:
    • OldBank’s loan portfolio shrinks by 9%, as businesses shift to alternative lenders offering lower fees and better digital services.
    • Net income falls 15% year-over-year.
    • The bank cuts 5,000 jobs due to cost-saving measures.
  • Political & Global Economic Changes:
    • Canada’s housing market sees a major correction, with prices in major cities dropping 20%.
    • Global trade becomes increasingly fragmented, with nations forming regional financial alliances outside of Western banking influence.
  • Technological Developments:
    • China expands its AI-driven financial services, allowing direct AI-managed investments in emerging markets.
    • African digital payment platforms partner with Chinese banks, bypassing SWIFT and reducing reliance on Western financial infrastructure.

2027: Major Losses & Market Share Decline

  • Financial Metrics:
    • OldBank reports a $3 billion loss in Q2 due to bad loans in the collapsing real estate sector.
    • Stock price drops another 25%, causing panic among shareholders.
    • Deposit outflows increase as customers shift funds to decentralized finance (DeFi) platforms.
  • Political & Global Economic Changes:
    • The U.S. dollar weakens as the global financial system becomes more multipolar.
    • Canada’s government proposes a digital loonie, reducing the need for traditional banks in everyday transactions.
  • Technological Developments:
    • China’s AI-driven credit rating systems outperform Western models, leading businesses to prefer Chinese-backed financial services.
    • African economies integrate blockchain-based identification systems, allowing seamless banking access without traditional infrastructure.

2028: Regulatory Pressure & Liquidity Crisis

  • Financial Metrics:
    • OldBank’s liquidity ratio drops below 8%, triggering regulatory concerns.
    • Large corporate clients withdraw over $10 billion, fearing insolvency.
    • The Canadian government intervenes, forcing OldBank to sell $20 billion in assets to stay afloat.
  • Political & Global Economic Changes:
    • Canada enters a mild recession, increasing banking sector stress.
    • The government increases support for state-backed fintech solutions, competing directly with traditional banks.
  • Technological Developments:
    • African digital currencies become widely used in global trade, further reducing reliance on Western banks.
    • Chinese AI-driven financial advisors replace human wealth managers, offering ultra-low-cost investment solutions.

2029: The Final Collapse Begins

  • Financial Metrics:
    • OldBank fails to secure emergency funding as investor confidence collapses.
    • The bank’s market capitalization drops to $2 billion, down from $40 billion in 2025.
    • A bank run begins as depositors rush to withdraw funds, overwhelming OldBank’s liquidity reserves.
  • Political & Global Economic Changes:
    • The Canadian government signals it may not fully bail out OldBank due to the growing digital banking sector.
    • Major pension funds and institutional investors dump OldBank’s stock.
  • Technological Developments:
    • African and Chinese digital banks offer direct international accounts, siphoning off millions of OldBank’s customers.
    • AI-driven credit systems become the global standard, rendering traditional credit analysis obsolete.

2030: OldBank Declares Insolvency

  • Financial Metrics:
    • OldBank declares bankruptcy in Q2, unable to meet withdrawal demands.
    • The Canadian government splits OldBank’s assets between fintech startups and remaining competitors.
    • Shareholders and uninsured depositors lose billions.
  • Political & Global Economic Changes:
    • Canada launches a government-backed digital financial network, eliminating the need for traditional banks in many sectors.
    • The global banking landscape is now dominated by AI-driven, decentralized financial systems.
  • Technological Developments:
    • Chinese and African AI-powered financial services become the dominant players in global banking, pushing out legacy institutions.
    • Western banking collapses in several markets, marking the end of an era for traditional financial institutions.

Conclusion

OldBank’s failure in 2030 is not just a result of financial mismanagement—it is the consequence of global economic shifts, technological disruption, and changing consumer behavior. By the time it collapses, the world has moved beyond traditional banking, leaving OldBank unable to compete in an era dominated by AI, blockchain, and decentralized finance.

Tom Koor

Is a renegotiated USMCA the solution?

Is a renegotiated trade agreement between US, Mexico, and Canada the solution?

I am curious about 5 things you’re observing in your fellow leaders of other companies:

#1 Why do leaders think a renegotiated trade agreement between US, Mexico, and Canada the solution?

  1. What evidence has there been in President Trump’s history that he will honour a personal, business, or legal commitment?
  2. What evidence is there that a renegotiated agreement will be honoured or that there will be no further demands or trade issues with the US?
  3. What concessions and changes will Canada need to make to get the new USMCA and what will be the implications to individuals living in Canada?

#2 Do the leaders think this the beginning of an economic war with the US?

#3 How many boards of directors and business leaders have launched their crises management process?

  1. How many think this a crisis?
  2. How many have processes and plans which can be launched?
  3. How long will this turmoil go on  for? i.e. when, if ever, will things settle down OR will turmoil be never-ending?
  4. What changes will outlast the tenure and control of President Trump?

#4 How many boards of directors and business leaders have launched their war rooms?

  1. What is the purpose of the war room? Does it provide real time data to decision makers? Does it provide visual data and analytics both proactively and on demand? Does it provide alerts when decisions are required?  Does it update scenarios and enable fast creation of new scenario?
  2. Are the war rooms a combination of physical and virtual?
  3. What information is shown in the war room?
  4. Is the war room operational 24/7?
  5. Does it have a combination of people and AI support?

#5 What percentage of the companies your know have the right talent at the board of directors and C-Suite?

What changes in talent need to occur?

What talent development needs to occur?

How many have the right consultants and advisors in place?

 

Tom Koor

What is a business model canvas? V4

What is a Business Model Canvas? V4

 What is the purpose of this article?

This article enables a discussion about what should be in your BMC (Business Model Canvas). The BMC is the story of who your customers are, why they buy from you, and how you make a profit.

The audience for this article includes:

  • Early-stage company founder, leaders, and investors.
  • Established company and business unit leaders.
  • Boards of directors, C-Suite, and investors.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: What is a business model canvas V4

What are the critical learnings in this article?

  • The purpose of your BMC is to provide and easy to understand one page framework which communicates who your customers are, why they buy from you, and how you make a profit. The one-page framework is supported by additional detailed information.
  • If your company has a single BMC, then everything to create and run your company is within the scope of your BMC. The bulk of the information will be within your supporting documentation.

A-What is the purpose of your BMC?

  • The purpose of your BMC is to provide and easy to understand one-page framework which communicates who your customers are, why they buy from you, and how you make a profit. The one-page framework is supported by additional detailed information.

B-What is the value of your BMC?

  • It focuses on who your target customers are and their perception of your value proposition.
  • It directly ties your internal value creation to your customers perception of their value creation.
  • It enables competitive advantage by identifying your unique value proposition.
  • It provides a common language for leaders, employees, and others.
  • It should be easy to create, update, and enable scenario planning.
  • It enables fast and easy brainstorming.
  • The initial version may be based on assumptions, which can then be validated or rejected.

It is a tool which helps leaders learn

C-What does your BMC look like?

  • Your BMC is a one-page slide, with bullets, outlining the 9 components: customer segments, customer value proposition, customer relationships, channels, key partners, key resources, key activities, cost structure, revenue streams.
  • Your BMC has a multi-page supporting document with further facts, analysis, and assumptions regarding each of the 9 components. This supporting document will have links to other documents in your company.
  • Your company may have multiple BMCs. E.g. if you have different types of customers with different problems and needs which require different solutions.

D-What does the one page slide look like?

I’ve attached a link to one example of a Business Model Canvas from Steve Blank’s Stanford University 5-day program for startups The startup was called “Cratiso This BMC was created in 5 days, sometimes changing in the course of a single day. It illustrates the value of quickly talking to lots of potential customers.

https://koorandassociates.org/wp-content/uploads/2025/02/business-model-canvas-cratiso.pdf

E What are the 9 components of your BMC?

How do you read this section?

  • There is a definition of each of the nine components.
  • Then there are a series of questions you need to answer for each component.

#1 Customer Segments

Definition

These are the target customers and users.  Each customer and user segment will have its own value proposition.

Questions to answer include:

  • Who exactly will you be creating value for?
  • Who are the cash paying customers? Who are the users? g. Google has users who pay no cash to do searches.  Google has advertisers who pay cash.  Without users, Google. would have no customers.
  • What are their problems and needs?
  • What are the geographic, social, and demographic characteristics of your customer segments?
  • How many customers are willing and able to pay to address their problems and needs?

#2 Customer Value Proposition

Definition

A value proposition is the customers perception of value.

This perception can be influenced by: facts, emotions, family & friends, social media, etc.

The value proposition = (All the customer achieved benefits) / (All the customer incurred costs)

All the customer achieved benefits can include both financial and non-financial (e.g. time savings, convenience, status, etc.)

All the customer incurred costs can include financial (purchase costs, costs to switch to your company, other adoption costs, and ongoing costs) and non-financial (time, inconvenience, loss of status, etc.)

The value proposition also needs to be competitively differentiated.

Questions to answer include:

  • What value does each customer segment expect to receive from your solution?
  • What’s the customer need or problem that they will open up their wallet for?
  • Do people agree that you are solving a high value problem or need?
  • What does the customer believe will be the impact of your solution? E.g. 10 times improvement in something?

#3 Customer Relationships

Definition

What type of customer relationship do your customers expect to have with you?

Questions to answer include:

  • How will you get, keep, and grow customers?
  • Why type of relationship does each customer segment expect you to establish and maintain?
  • What types of relationships have you already established?
  • What is the cost of each type of customer relationship?

#4 Channels

Definition

Channels are how to connect the value proposition to the target customer.  There are three different types of channels:

  • Communications – used to communicate with potential customers. There may be many communications channels.
  • Sales – where customers and sellers agree on the transaction. Usually there are fewer sales channels than communications channels.
  • Logistics – how to deliver the solution to the customers.

Questions to answer include:

  • How does the value proposition get to the customers and users?
  • How will you be selling and distributing?
  • Through what types of channels do the customers want to be reached? In other words, what channels are most effective? E.g. website, app, social media, face-to-face, marketplaces, etc.
  • What channels already exist?
  • Which channels are most cost efficient?
  • Which channels are integrated with customer processes?

#5 Key Partners

Definition

A partner may also be a channel, if the answer is “yes” to one of the following questions:

  • Who are the key partners and suppliers?
  • What exactly are you acquiring from them?
  • What are they going to do and when?
  • Is the partner a leading entity with a brand and market position that adds to your credibility?
  • Does the partner add expertise and resources to your product solution in a way that increases the value of the product for the end customer?
  • Is the partner (and their brand/expertise/resources) required to land contract with the key target customers?

Questions to answer include:

  • Who are the key partners?
  • Who are the key suppliers?
  • What key activities, supporting your value propositions, do your partners perform?
  • How effective are your current partners and suppliers?
  • What types of partners and suppliers do you need?

#6 Key Resources

Definition

Key resources mean any relevant intellectual property (IP), technical expertise, human resources, financial and physical assets, key contracts and relationships. In other words, resources refer to anything within your control that can be leveraged to create and market your value proposition (e.g., a patent pertaining to your value proposition, key contacts within the industry).

Questions to answer include:

  • What resources are necessary to:
    1. Enable the customer to achieve their value proposition?
    2. Maintain channels and partnerships?
    3. Build relationships with customers?
    4. Build revenue?
  • What resources exist today?
  • How effective are they?

#7 Key Activities

Definition

The key processes that are required to weave together your resources with those offered by your partners to deliver the value proposition, manage channels and relationships, and generate revenue. Examples of key activities include R&D, production, marketing, sales and customer service.

Questions to answer include:

  • What are the most important things you need to do to make the business model work? What key activities are necessary to:
    1. Enable the customer to achieve their value proposition?
    2. Maintain channels and partnerships?
    3. Build relationships with customers?
    4. Build revenue?
  • What activities exist today?
  • How effective are the current activities?

#8 Cost structure

Definition

The cost of delivering the value proposition, including the resources needed and key activities involved. We want to answer the following key question

Questions to answer include:

  • What are the most important costs in the business model?
  • What are the largest costs?
  • What are the fixed costs and variable costs?

The financial cost details will be in the monthly cash flow forecast, summarized into a one-page cash flow forecast.

#9 Revenue Streams

Definition

How will you charge your customers and what will you charge?

Questions to answer include:

  • What is the specific value the customers are willing to pay for?
  • What is the revenue strategy for each customer segment e.g. How will the customer be paying – usage, subscription, one-time, freemium, etc.
  • How much are they paying today?
  • What is the pricing model? How will you set the price for each customer segment and revenue strategy?
  • How are they paying today? i.e. the customers current revenue strategies and pricing.

The revenue cost details will be in the monthly cash flow forecast, summarized into a one-page cash flow forecast.

F- Are all the parts of your company in your BMC?

What if you are a company with a single BMC?

  • Every company component is in your BMC. E.g. Board of Directors mandate, company policies.

What if you have multiple BMCs? E.g. you are a multi-division established company.

  • Your BMC is no longer self contained e.g. There may an overall board of directors. Your BMC will reside within your company’s business framework. I will be publishing a revised version of that framework by the end of February, 2025.  At that time, I will include the link here.

G-What are your next steps?

  • Take the free video course “How to build a startup”

https://www.udacity.com/course/how-to-build-a-startup–ep245

Take detailed notes. There is little value in passively watching without taking notes.

  • Start to build your BMC and supporting document.

 What further reading should you do?

The following is just one of many PowerPoint and word BMC templates on the web.

https://neoschronos.com/download/business-model-canvas/ppt/

Appendix How do you communicate the evolution of the BMC?

  • All assumptions in italics. On day one of launching the startup, it’s likely that all of the entries will be assumptions.
  • When assumptions are invalidated, due to input from customers, users, and other fact-based analysis, the assumption is crossed out, with a footnote referencing the document which contains the rationale for invalidation.
  • When an assumption is validated, there is a footnote referencing the document which contains the rationale for validation.
  • You won’t be able to show all of the invalidated assumptions. New assumptions will be made.  Only the most important validations will remain on the BMC. Less important validations will be dropped from the one-page BMC and may be included in the supporting documentation. You may decide to keep an appendix which contains all the of the invalidations and validations.
Tom Koor

Canada-US tariff dispute – what will success look like in 2 years? What are some scenarios?

Canada-US tariff dispute – what will success look like in 2 years? What are some scenarios?

What will success look like to President Trump? A scenario.

  1. USMCA (Free Trade Agreement Changed): More car manufacturing in the US.  US access to Canadian dairy and other farm markets.  Etc. US and foreign companies investing in the US rather than Canada. More manufacturing jobs in the US
  2. Canada has made massive cash increases to defence spending in 2025 and 2026.
  3. Canada has made massive cash increases to border security in 2025 and 2026. Thousands of additional law enforcement hired. Dozens of Black Hawk helicopters purchased.

What will success look like to Canadian federal and provincial leaders in 2 years? A scenario.

  1. President Trump has capitulated, admitted defeat, and dropped all tariff and non-tariff barriers within a matter of days after Feb 1, 2025.
  2. USMCA re-negotiation results to no negative impact on Canada.
  3. Everything remains the way it was in 2023.

What might another scenario look like to Canadian federal and provincial leaders in 2 years?

  1. President Trump does not capitulate, admit defeat, or drop any tariff and non-tariff barriers.
  2. USMCA (Free Trade Agreement Changed): More car manufacturing in the US.  US access to Canadian dairy and other farm markets.  Etc. US and foreign companies investing in the US rather than Canada. Fewer manufacturing jobs in Canada. Canadian companies relocating to the US.
  3. No significant cash increase in either defense spending or boarder security in 2025 or 2026.
  4. Massive govt borrowing to shield companies and individuals from tariff impacts results in higher interest rates and Canadian govt debt reaching junk status.
  5. Large numbers of professionals move to the US.  Major drop in the number of medical professionals in Canada.

What are the scenarios you are considering?  Some of the scenarios must have negative outcomes. I am totally unable to predict what the future will look like in 2 years time.  Can anyone predict the future?

Tom Koor

Do you understand your customers? V3

Do you understand your customers? V3

 The purpose of this article.

  • Help the board of directors and C-Suite establish a common understanding of their cash paying customers and users.
  • This article provides an overall framework for you to develop a plan for your company.
  • This article applies to any business that depends upon cash-paying customers. This could range from:
    1. Early-stage startups to long established global companies.
    2. Customers that are the general public to customers that are investors in investment funds.

You can download a PDF of this article from: Do you understand your customers V3

What are the critical learnings in this article?

  • Customers (i.e. those paying cash) may be very different from users.
  • Your company will fail if your competitors understand customers and user better than you do.
  • Your need facts about how your customers perceive:
    1. Their urgent problems and needs.
    2. The financial and non-financial benefits they achieve from solving their urgent problems and needs.
    3. The benefits they are able to achieve from your solution vs the competition or status quo.
  • You must understand your customers’ emotions. Customer perception is a combination of emotion and facts.  Often facts play little or no role in customer perception.
  • You must learn and use your customer’s language in order to understand and influence your customers.
  • There can be many different customer segments, each with differing criteria and perceptions.
  • Everyone in your company needs some understanding of your customers.

What is the process to understand your customers and users?

  • The eight-phase process is set out below.
  • The most critical part of the process is listening to what the customers and users are saying and observing what they are doing.
  • You start out by listing your assumptions.
  • Then you validate these assumptions via customer and user input.

Phase 1 Analyze third party market data.

  • What have been the historical trends?
  • What is the existing analysis of target segments e.g. problems, needs, geographic, social characteristics, demographic?

Phase 2 document your assumptions, whether or not you have existing cash paying customers and users.

Step 1: Define who your customers and users are.

  • Identify the key members of the customers’ ecosystem? Users are most common.  There can also be influencers, recommenders, blockers, etc. e.g. Google’s cash paying customers are advertisers.  Google would not have customers if there weren’t a large number of free users doing searches.
  • Who are your target customers and customer segments e.g. geographic, social characteristics, demographic?

Step 2 What does a day-in-the life of the customers and users look like?

  • What are the points of the day when they have urgent problems, pains, needs which your solution may be able to help with. Rank these in terms of intensity and frequency of occurrence.
  • What are the points of the day when they have problems or needs? Rank the relevance in term of size of problem or need, and frequency of occurrence.
  • What value would the customer achieve as a result of solving problems or meeting needs? g. time saving, saving money, making more money, reducing frustration, increasing happiness, increasing social standing, etc.
  • At which points do they touch or become aware of your solution? These include: friends, colleagues, social media, conferences, publications, website, app, email, customer service, etc.
  • How do the customers and users perceive the value of your solution vs the current situation and competitors?

Understanding how your customers and users live requires ethnographic research. 1

Step 3 What is the market size?

Market size requires customers who realize they have an urgent problem or need, are willing to spend money to solve it, and can afford to spend the money.

  • How many cash paying customers, and what would the revenue be, if you receive 100% of customer spending, regardless of distribution channels, and geographies?
  • How many cash paying customers, and what would be the revenue you receive 100% of customer spending, with your current distribution channels and partners?
  • What is your current market share? How many cash paying customers do you have, and what is the revenue? If you’re a startup, what are your assumptions for years 1,2,3?

Step 4 What is the customers decision making process and criteria?

  • There may be several sets of decisions. E.g. whether or not to seek a solution, whose solution to pick, whether or not to exit a solution provider to move to another solution provider.
  • There can be several roles involved (for customers who are individual consumers and for business customers). E.g. the decision by the person paying the cash, recommenders, influencers, etc.
  • What is their decision-making process? Who is playing what role?
  • What are the criteria used by each person to assess: Is a solution required? Which solution should be selected? Should the current solution be exited and a new solution obtained?

Phase 3 Validate your assumptions by learning from your customers

You must learn from your customers:

  • What do they think are their urgent problems and needs?
  • What do they think are the financial and non-financial benefits of addressing their problems and needs?
  • How do they perceive the benefits they can achieve from your solution vs the competition or status quo?

You learn from your customers via:

  • Your Customer Advisory Board;
  • Surveys;
  • Focus groups; and
  • One-on-one interviews. Etc.

The qualitative data you collect will require thematic analysis. 2

Phase 4 Additional input if you have customers and users

The single most important question is asking  “Would you recommend our solution to others?”  This metric is known as NPS (Net Promoter Score)3.  Follow on questions could be “If so, why?  If not, why not?”

A more detailed question would be: “How would you feel if you could no longer use our product or service?”4

  • Very disappointed?
  • Somewhat disappointed?
  • Not disappointed – it’s not really that useful?
  • I no longer use it.

At least 40% of your target customers must say “very disappointed”.  If it’s less than 40% you need to reposition/change your solution.  One approach can be to segment the answers to find a customer segment where the response is above 40%.

You must understand the group above 40%.  The 5 questions to ask them are: 1) who are you (demographically) 2) why did they seek out your product/service?  3) how are they using it 4) what is the key benefit 5) why is that benefit important?

Additional sources of customer input include:

  • Follow up emails after customer and user interaction, customer purchase, or customer/user exit.
  • Analysis of live chat discussions.
  • Analysis of sales call logs.
  • Analysis of app or website interaction.
  • Analysis of customers and users postings in social media, including review sites.
  • Survey kiosks at physical events.

Much of the customer input will require thematic analysis, because it will be qualitative and unstructured data.

Phase 5 Analysis of your company data

  • What % of customers and users do you lose each month?
  • What is the lifetime profit of a customer?
  • What is the customer acquisition cost?

Phase 6 Combine all of the above data

  • All of the above data may be combined and analyzed.
  • You’ll have both quantitative data and qualitative data. The qualitative data will require ethnographic analysis.
  • Different customer and user views include: by cohort, customer/user segment, geography, channel, partner, etc.

What is the value of all this data?

  • It helps you reduce customer acquisition costs, increase lifetime profitability of cash paying customers, attract customers more quickly, and reduce churn.

How do you achieve this value?

  • You prioritize your time and resources on what your customer would value, especially on the criteria which determine whether cash paying customers buy from you, your competitors, or remain with the status quo.
  • Your team has a common understanding of customers, which enables more effective decision making and execution.
  • Both your marketing and solution development are focused on enabling customers to achieve more benefits than the status quo or your competition.

Phase 7 Create customer persona for each target customer segment

What is a customer persona?

  • It is an easy to read, no more than one page, description of the key characteristics of a target customer segment. It is based on facts you have directly collected from customers and from third party research regarding C&U.
  • A persona NOT hopes, dreams, wishes, personal opinion or individual anecdotes.

What is the value of a customer persona?

  • A persona helps everyone in the company (from the most junior to most senior) to easily have a common understanding of the customer.
  • Step 6 may produce a large volume of complex and hard to understand analysis.

How do you achieve this value?

  • You communicate the persona throughout the company, including the board of directors, C-suite, and advisory board.

What does a simple cash paying business customer persona look like?

  • The persona should be personal. Two aspects of the persona may be fictional: the photos and the names of the person.
  • You may have more than one persona for a target segment, but then consider whether you in fact have more than one target segment.
  • Remember that your cash paying customers may come from different backgrounds e.g. gender, race, etc.

What components could a simple cash paying customer business persona include:

  • Photos:
  • Name:
  • Business role: e.g. Head of marketing and sales. decision maker, recommender, influencer
  • Personal demographics : e.g. age 32-49, income: between $200,000 and $300,000 per year, Master degree, married with no children
  • Urgent business problems: company is losing customers, attracting few new customers, customer feed back is that “terrible service”
  • Criteria for making a decision: one hour meeting with the person leading and accountable for the solution. Building trust and connection with the advisor.

What could a complex cash paying customer persona look like?

  • Photos:
  • Personal background: age, marital status, number of children, education, location
  • Job role: reports to xx; manages yy: key performance metrics for role; skills and knowledge
  • Company or business unit information: industry, revenue, # of employees
  • Business goals: what does success look like for this person e.g. bonus and promotion? What are the urgent problems and needs? What are critical objectives in the person’s business plan? What criteria are used to assess a solution provider
  • What are personal goals and values: church volunteer, expedition travel, job security.

The Further Reading Section below has a link to an article with several examples of persona.

Phase 8 Continue the above 7 phases on an ongoing basis

  • Understanding customers and users is an ongoing process not a one-time event.
  • There are rapid and ongoing changes to: customer and user problems and needs, the competition, market sizes, regulation, the economy, new technology enable solutions, etc.

What are your greatest challenges to understand your customers and users?

  • Your are unable to accept that your opinions and assumptions are wrong about: who your cash paying customers and users are, what their problems and needs are, how they view your competitively differentiated value proposition, how they make decisions, how many of them exist, etc.
  • You don’t want to or are unable to change your opinions and assumptions. Change requires self-confidence combined with a passionate ability to learn and unlearn, based on facts.

 Your next steps

  • Customize the above 8 phases to your specific situation. For example, the process to understand investors in an investment fund will be different from end consumers deciding to buy a $10 product once a week.
  • Carry out the above 8 phases as quickly as possible. Don’t try to do a massive, 100% comprehensive and detailed effort. View this as a pilot, where you’re trying to get 80% of the value from 20% of the efforts. You might not even do all 8 phases nor every part of every phase.
  • Establish the ongoing process. If this is not ongoing, sooner or later you will not longer understand your customers, resulting in your company’s failure.
  • Assess the how much additional value could be achieved by improving the process. The best way to do this is via pilots and experiments.

Footnotes:

1 Ethnographic research. 

Ethnography is the branch of anthropology that involves trying to understand how people live their lives. It outlines the context in which customers would use a new solution and the impact that solution might have on their lives.

2 Thematic Analysis

Thematic analysis is a method of analyzing qualitative data such as interview transcripts. The researcher closely examines the data to identify common themes – topics, ideas and patterns of meaning that come up repeatedly. There are two approaches:

  • Inductive – the data validates or invalidates assumptions
  • Deductive – the data identities the finding

 3The Net Promoter Score concept was initially developed by Bain.  The following is a link to the Bain website homepage for Net Promoter Score, which contains several short articles:

http://www.netpromotersystem.com/about/why-net-promoter.aspx

The following is a quick overview of using Net Promoter Scores:

https://www.forbes.com/sites/shephyken/2016/12/03/how-effective-is-net-promoter-score-nps/#1b1391b423e4

 4 https://medium.com/swlh/in-search-of-a-better-way-to-measure-product-market-fit-584fa41d3840

What further reading should you do?

Customer persona examples

https://www.brafton.com/blog/strategy/persona-examples-from-around-the-web-and-why-they-work/

 Talk with 100 customers before launch your company or start thinking about potential major changes.

https://medium.com/build-something-cool/yes-you-should-talk-to-100-customers-before-launch-afa1962f5c7

Understand how your customers feel, by using a customer empathy map

https://www.futurpreneur.ca/en/resources/sales-and-marketing-skills/tips-tools/customer-empathy-map-understanding-your-customer/?path=pathway&section=explore

Make a list of customers and potential customers to talk to.

https://marker.medium.com/how-i-saved-my-startup-before-it-even-launched-32e565a166a1

Tom Koor

What are the three greatest risks to your company?

What are the three greatest risks to your company?

 What is the purpose of this article?

This article enables a discussion regarding the three greatest risks to your company.  The audience for this article includes: boards of directors, CEO, C-Suite, individual investors, and institutional investors.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: What are the three greatest risks to your company

What are the critical learnings in this article?

The three greatest risks to your company are:

  • The talent on your board of directors
  • The talent on your C-suite
  • If you have controlling shareholders, the talent of the controlling shareholders.

Why are these three the greatest risks?

#1 They make the business decisions with the greatest impact on the company e.g.

  • Appointment and termination of the CEO
  • Assessment and approval of the talent selection, development, and exiting processes and policies – including your board of directors and C-Suite.
  • Assessment and approval of: the strategic plan, budget, and policies.

#2 They monitor the performance of the company, its talent, processes, and technology. They take corrective action.

#3 They have, or lack, a variety of external relationships which can enable your company’s success

#4 They have, or lack, the capability to assess the analysis and recommendations provided to them from internal and external sources.

#5 Their behaviours, actions, and decisions communicate the expected values, morals, and ethics to the entire company and members of your company’s ecosystem.

The talent as a whole must be competitively differentiated. 

  • If the talent as a whole significantly lags the competition, the company will under perform or fail.
  • This does not mean that every single person in the above talent pool must be better than all of the competition. Company success requires a team.

What are your next steps?

  • Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
  • Define what you mean by risk vs uncertainty.
  • Define how your measure the impact of risk e.g. how does the measure of a high-risk item compare to the measure for a low-risk item.
  • Describe your future scenarios. There must be at least three failure scenarios. #1 You company goes out of business. #2 Your company creates negative economic profit.  #3 Your company produces below median benchmark results.
  • Define the evaluation criteria for talent. Start with the criteria outlined in the further reading section below: “What are the core components of talent? V4”
  • Do an anonymous self assessment of your talent. The directors assess the board as a whole and C-Suite as a whole. The directors also assess any controlling shareholders. The C-Suite assesses the board as a whole and C-Suite as a whole. The C-Suite also assesses any controlling shareholders. The assessment questions are: Will the talent at the board, C-Suite, and any controlling shareholders enable company success in every future scenario. If so, why? If not, why not.  For the scenario in which your company fails, what components of talent enable failure?
  • Discuss the results. Create an action plan to increase the chances of your company’s success and reduce the chances of failure.

What further reading should you do?

What are the core components of talent? V4 Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

Your company will fail.

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

Jeff Bezos 2020 letter to shareholders – his final one.  He quantities value creation in financial terms for some members of Amazon’s ecosystem.

https://www.aboutamazon.com/news/company-news/2020-letter-to-shareholders

Tom Koor

What is your business strategy? V2

What is your business strategy? V2

 What is the purpose of this article?

This article enables a discussion about what is your company’s business strategy. The audience for this article includes: the board of directors, C-Suite, and investors.

This article is intended for business who have to compete for customers, or investors.  Therefore, this article is not intended for: pension funds, sovereign wealth funds, etc.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: What is your business strategy V2

What are the critical learnings in this article?

  • Your business strategy is about making an integrated set of choices that compels desired customer and ecosystem member actions.
  • Your business strategy, company purpose, and North Star metric are all inter-related.

Are there different types of strategies?

There are many different types of strategies. E.g.

  • Business strategy;
  • Strategy for winning a war; or
  • Strategy to win at the Olympics.

The common factor is: What does success look like?

What is a business strategy? 1

A business strategy is about making an integrated set of choices that compels desired:

  • Customer actions; and
  • Ecosystem member actions

 

Your company’s strategy includes both the choices you’ve made today and the choices you’ve made in the past.

Doing nothing is always a choice you can make.  Many leaders don’t understand that they have made the do-nothing choice.

Steve Jobs supposedly said “Deciding what not to do is as important as deciding what to do””

What are the four components of a business strategy?

  • Desired actions: e.g. what are your desired actions for your customers? Switch from a competitor to your company? Stay with your company?  Buy more from your company? Recommend your company to others, resulting in viral grow? Etc.
  • Compels: the desired action is irresistible for the customer. Emotion is more powerful than logic in compelling actions. Thus, you must be focusing on the heart, with additional support via logic
  • Choices: You have at least two alternatives, and decide which alternative(s) to execute.
  • Integrated set: e.g. your customers may perceive that your value proposition 2 has multiple components. Each component has choices. The combined set of choices results in compelling action.

Does your business strategy reflect the purpose of your company?

Why does your company exist?

Larry Fink, in his 2018 letter to CEOs, said “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate…..Without a sense of purpose, no company, either public or private, can achieve its full potential…..And ultimately, that company will provide subpar returns to the investors” 3

 Bain’s 2024 analysis showed that companies that delivered both stakeholder and financial value delivered better shareholder value. 4

Jeff Bezos quantified value creation for some members of Amazon’s ecosystem in financial terms, in his final letter to shareholders in 2020. This letter included his first shareholder letter from 1997.  Amazon’s current CEO continues to include in his shareholder letter, the original 1997 letter. 5

Is your North Star metric aligned with your company purpose and business strategy? 6

“…having an overarching metric that gives direction and aligns all the other metrics together can be infinitely useful.

The North Star metric gives you a direction that is in line with the value you offer to your customers. That direction is the single largest driver of sustainable long-term growth”

In order to determine the single most important metric for your growth model, you should look at how your product delivers value to your customers. You should be able to understand the value your customers get from your product looking at user engagement and activity level. For example, for Medium (the reader and writer network) the metric is “total time reading,” for Facebook it is “daily active users,” for Airbnb the metric is “nights booked,”

Why are choices about ecosystem members critical?

  • One example of an ecosystem member is your employees. Do current and future employees want to work for your company? Are they passionately committed to your company’s success? Is their purpose aligned with your company’s purpose and North Star? Do current and potential employees perceive a competitively differentiated value proposition for joining or staying with your company? What are the choices you’ve made to attract, retain, and develop the employees you need?
  • There are many more choices your company can make regarding ecosystem members.

What are the seven inter-related strategic choices you need to make?

  • What is the problem you are trying to solve?
  • Who has the problem?
    1. How do your potential customers describe and perceive their problem?
    2. Which customer segments will your target?
  • What is your competitively differentiated value proposition, in the hearts and mind of your target customers?
  • What is the competitively differentiated talent you need?
    1. What roles will have the greatest impact on planning and delivering the value proposition?
    2. What are the specific capabilities of this talent?
  • What are the competitively differentiated capabilities you need? E.g.
    1. Resources such as: intellectual property, technical expertise, technology, financial, partnerships, relationships, channels, talent
    2. There are two sets of processes: #1 processes to acquire and manage the resources #2 Marketing, sales, onboarding, off boarding, R&D, production.
    3. What are the specific points of competitive differentiation?
  • What will be the total cost of developing and delivering the value proposition? Thus includes the talent and capabilities.
  • What are the values you will use in making your choices?

You can document the key points of your strategic choices in a single slide.

 What are your greatest challenges to creating a strategy that enables value creating growth?

  • Listening to your customers as you talk with them to understand their perception of their problems. Steve Jobs supposedly said “If you define the problem correctly, you almost have the solution”. Albert Einstein supposedly said “ If I had only one hour to save the world, I would spend fifty-five minutes defining the problem, and only five minutes finding the solution”. Many leaders have strong opinions regarding what they think are customer problems.
  • Confusing a strategic plan with a tactical plan to achieve the strategy. A common definition of a strategic plan is  “A strategic plan describes the company’s current state, desired future state and how to go from one to the other…. business goals and projects to achieve them… 12-month action plan that lists specific initiatives”. 7 That definition reflects a tactical plan.  Including a tactical plan in your strategic plan produces a massive document which makes it very hard to focus on the actual strategy.
  • Not discussing and agreeing upon the values used to make your strategic choices. For example, will you include the impact on ecosystem members in your decision making – such as moving employment elsewhere if the result is devastation of local communities that depend on you. Is your “North Start” maximizing shareholder value?
  • McKinsey has said what strategy is not “it is not a wish list of possible outcomes”.

What are your next steps?

Define the words/concepts you’re using, in a glossary.  I’ve seen major confusion when the same words mean different things to different people.

Phase 1

  • Prepare a strategy assessment document by reviewing your existing strategic plan. Use the above definition of strategy.
  • Identify what’s missing.

Phase 2

  • Interview your board of directors and C-Suite to prepare a second strategy assessment document.
  • Ask what they personally think the strategy is and what they believed other director and C-Suite think the strategy is. Use the above definition of strategy.
  • Discuss the implications of the different points of view regarding strategy and the gaps in in your strategy.

Phase 3

  • Identify and assemble to right talent to make and revise the choices.
  • Define the process for making and revising the choices. Revisions may occur at any time.  Train the decision makers. The process will also identify the required capabilities of external advisors and support people. The process must document the alternatives considered and the rationale for the choice made.
  • The process must describe the links between strategy and tactics, the links between the strategic plan and the tactical plan.

Footnotes

1 Adapted from the strategy definition in the following article

“Strategy for startups-Redux” Roger Martin Medium Sep 16, 2024

https://rogermartin.medium.com/strategy-for-start-ups-redux-e8a04a1d8b72

2 “What is a value proposition? Koor and Associates website.

https://koorandassociates.org/understanding-customers/what-is-a-value-proposition/

3 Harvard Law School Forum on Corporate Governance, Larry Fink’s January 2018 letter to CEOs

https://corpgov.law.harvard.edu/2018/01/17/a-sense-of-purpose/

4  “Financial or Stakeholder Value? For Shareholders, Both Are Best” Bain, July 10, 2024

https://www.bain.com/insights/financial-or-stakeholder-value-for-shareholders-both-are-best-snap-chart/#:~:text=or%20Stakeholder%20Value%3F-,For%20Shareholders%2C%20Both%20Are%20Best,Leading%20companies%20deliver%20both.

5 Jeff Bezos final letter, as CEO, to shareholders in 2020

https://www.aboutamazon.com/news/company-news/2020-letter-to-shareholders

6 Forbes August 24, 2017 Andrew Miller

https://www.forbes.com/sites/forbesagencycouncil/2017/07/19/how-to-find-your-companys-north-star-metric/#:~:text=In%20order%20to%20determine%20the,user%20engagement%20and%20activity%20level

7  I copied this definition from the website of a major organization.

 

Tom Koor

Limited Partner assessment of a fund. V8

LP (Limited Partner) assessment of a fund. V8

 What is the purpose of this article?

  • Help individual LPs (Limited Partners) think about how to assess a GP (General Partner) managed fund making investments in private companies. Institutional investors, family offices, and ultra-high net worth individuals should do more than what is discussed here.
  • Help fund managers prepare to engage with knowledgeable LPs.

This article does not provide legal, tax, financial, or investment advice. You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: LP (Limited Partner) assessment of a fund V8

This article is focused on those people who consider their fund investment as part of an asset class in their overall investments.

Your overall investments have the core goal of growing and preserving your capital.  This capital may be needed for:

  • Retirement;
  • Heirs and estate (may include a foundation);
  • Major future spending; etc.

I’ve observed that some investors do not include these expenditures as part of their overall investment portfolio.  They view these expenditure as:

  • Giving back;
  • Supporting worthy causes and worthy individuals, etc.

 This article is focused on funds where the GP can enable value creation, using the combined resources available to it.

What are the three types of funds LPs might invest in?

  • The GP (General Partner) controls portfolio companies. The GP helps drive value creation using the resources (e.g. talent, relationships, knowledge, experience)of the GP and other LPs invested in the GPs fund. Capital is only one component of enabling value creation. Degree of control can be achieved by many means other than 50%+ equity.
  • The GP does not control the portfolio companies but still enables value creation drawing upon the resources of the GP and the LP investors in the GP’s fund.
  • The GP does not have control and has little impact on value creation. The GPs contribution to the portfolio company is capital.

 What are the critical learnings in this article?

  • Assess a fund (which is asking you for money) the same way they’d assess a company asking them for money.
  • Understand how the fund and its managers are competitively superior i.e. managers know things that others don’t and can do things others cannot.
  • Understand the potential for the fund managers to succeed in rapidly changing and different future.

Section A – What are some overall fund concepts?

What are the four stages of a fund?

  • Assembling a group of LPs.
  • Selecting investments.
  • Growing the value of the investments.
  • Achieving the value by exiting/selling the investments.

 Section B – What is the overall approach to assess a fund?

What are the four decision stages for assessing a fund?

You need a filtering process to end up with a few high potential fund candidates.  Why a filtering process? You might have contact with dozens or hundreds of funds.  You don’t have time to do in-depth analysis of each fund.

  • Should you open an email from a fund or reach out to a fund?
  • Should you have a brief chat with a fund?
  • Should you conduct due diligence with the fund?
  • Should you make an investment?

There are three sets of assessment criteria and analysis, distributed throughout the four decision making stages.

  • Alignment with and support of your investment thesis.
  • Past accomplishments and plans to grow your investment.
  • The capabilities of the fund managers to succeed in an uncertain future.

Some assessment criteria result in an immediate rejection of the fund (e.g. you don’t trust the fund managers) while other criteria result in a scoring.

Your assessments reflect:

  • The competitive differentiation of the fund and its managers.
  • Both the potential to increase the value of your assessment and to manage risk.

Remember that the economic interests of the fund general manager and fund investor are not the same.

  • The fund investors’ economic return is the rate of return on the capital put into the fund.
  • The fund managers’ economic return is a combination of management fees, other fees, and a share of the increase in the value of the capital in the fund.

Section C – How do you assess the talent of the GP?

Why focus on understanding how the fund managers are competitively differentiated?

Unlike 10+ years ago, these days there are countless funds and unlimited capital available.  Some of the implications include:

  • Many funds have been created by managers with limited capabilities to be successful.
  • The massive increase in the total number of funds means that there has been a massive increase in the number of below average funds.
  • Superb portfolio companies seek out funds that can provide more than just capital.

How is the talent and resources of the GP competitively differentiated, in the past and the future?

How is the GP’s performance competitively differentiated, in the past and the future?

Do the fund managers have the potential to succeed in a rapidly changing and different future? 1

The future will quickly be very different from the past.  Leading companies (of all kinds) are finding new and better ways to be successful. To what degree do the fund managers have the 8 core components of talent to succeed in a very different and uncertain future?

  • Self-awareness: e.g. Do the fund managers understand their strengths and weaknesses?
  • Character: e.g. Values, morals, and ethics. Warren Buffett supposedly said “…looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”
  • Relationship skills: e.g. Ability to create and sustain a network of personal relationships.
  • Crystallized intelligence: e.g. what skill, knowledge, ways of thinking, mental paradigms, and facts must the managers have.
  • Fluid intelligence: e.g. The ability to solve problems without past experience. This is critical for innovation, which is coming up with new and better solutions.
  • Cognitive skills: e.g. Able to collect and do fact-based analysis with sound logic and reasoning.
  • Ability to quickly learn and unlearn: paradigms, frameworks, methodologies, data, facts, knowledge.
  • Creativity

Some large LPs test the fund partners for the above talent components.

Your assessment of the above 8 talent components requires defining positive and negative indicators for:

  • observations regarding the analysis of the data room;
  • answers to questions for the fund managers references;
  • answers to questions for others who have interacted with the fund managers;
  • answers given by questions to the fund managers; and
  • outcomes of the behavioural interviews of the fund managers.

How has the GP learned and changed from their past experiences?

  • Is the manager doing the same things as 10 years ago or have they learned and evolved? How has their talent, processes, and technology changed? E.g. What role is data science and AI playing in both portfolio company screening and daily monitoring?

 What are some of the critical questions you must answer regarding the GPs:

  • How are the fund managers competitively differentiated in their capabilities? This includes talent, processes, and technology.
  • What do they know that other fund managers and you as an LP don’t know?
  • Are the fund managers above average? In the top quartile? Or higher? Or in the bottom quartile
  • What has been their historical performance. This may be: in a previous fund, previous personal investment results, or their career.

What is the current LP perception of the GP?

  • What is the NPS (Net Promoter Score) for the GP, based on LP input? NPS question – would you recommend this GP? If so, why? If not, why not?
  • Interview some existing LPs.

Section – D How is the fund governed?

How are LPs engaged with the General Partner?

  • What information is provided to the LPs and when?
  • How often is there a meeting of all LPs and what is the purpose of those meetings?
  • What authority do LPs have? What decisions must they approve? What veto power do they have?

What is the role of the LPAB (LP Advisory Board)?

  • What is the purpose of the LPAB?
  • What is the documented mandate?
  • What authority does the LPAB have? What decisions does it make? What veto power does it have?
  • How often does it meet?
  • What information is provided to the LPAB and when?
  • Who is on the board and how are they members selected?

Section – E How does the GP create value?

  • How did the GP create value in portfolio companies? Historically the bulk of private equity asset class created value three ways: multiple expansion supported by M&A, margin improvement, and leverage.
  • Many VCs focused on sales growth rather than profitable growth.
  • Some VCs take the approach of making investments in a large number of companies, and then making follow-on investment in those few companies that are successfully growing?
  • How did the fund managers increase the capabilities of the portfolio company leadership teams? E.g. improving the talent, improving recruiting, improving exiting, improving succession planning?
  • How did the fund managers assess and improve the leadership coaches and advisory boards for their portfolio companies?

 What is the GP’s process for exit planning?

How does the fund manager plan to return cash to LPs via successful exits? At this point in time many funds are having difficulty selling portfolio companies, resulting in cash returns to investors not meeting expectations.

  • What has been the GP’s historical results? What has been the return on LP investment?
  • What is the GP’s process for exit planning?
  • Does the GP start exit planning as part of the portfolio investment selection processes? Do they talk with potential buyers to determine the exit potential?  Do they maintain ongoing dialogue with potential buyers?  I’ve seen buyers disappear as the world changed, resulting in the inability to exit.
  • What is the GP’s target for future value creation after exit? i.e. why will the strategic buyer, other fund, or the public markets find the portfolio company to be attractive.

How does the GP manager the director talent it places on portfolio company boards?

  • What is the process for selecting, assessing, and exiting directors?
  • What only talent development is provided for directors?
  • Are there quarterly meetings for the GP’s selected directors. Meetings could include: discussion of portfolio company issues, continuing education, case study reviews, post- and pre- mortem discussions, lessons learned.

Section – F What has been the fund performance?2

  • 75% of LPs recalculate a fund’s performance using deal-level cash flow data. This enables LPs to make consistent comparisons of performance among funds.
  • Determine the impact of credit facilities and financial leverage on the fund’s performance.

Analyze the fund’s value creation drivers using techniques such as: PME (Public Market Equivalent analysis), Sensitivity analysis (e.g. did one deal drive all results, and every other deal failed),

Section – G What should be in the fund’s data room?

What is the purpose of the data room?

  • The data room provides a collection of documents which are intended to help answer some of your due diligence questions.
  • You’ll need to analyze the data room contents and benchmark the fund relative to other funds. The benchmark may range from an informal judgement to a factual analysis.

What are the fund’s 8 sets of data room contents, if this is the managers’ first fund?2

  • Fundraising pitch deck, including: team, including managers, advisors, etc. (with biographies), the opportunity (i.e. what is the market gap and why is the team best positioned to win), investment thesis, sourcing strategy decision making process, case studies, track record spreadsheet, portfolio construction, fund structure and terms.
  • Investment track record detail. If this is the managers’ first fund, the investment track record will include results from previous funds the managers were at and the managers personal investment results.
  • Investment memos and market map. The market map illustrates the segments and potential portfolio companies.3
  • Due diligence questionnaire. An industry standard questionnaire is provided by the ILPA (Institutional Limited Partners Association)
  • LPA (Limited Partnership Agreement).
  • Fund Model. A financial spreadsheet illustrating hypothetical future portfolio, with a number of key metrics
  • Reference list. You may also contact people not on the reference list. You may also require a formal background check of the fund managers.  Who are the other investors, their experience and value, and why did they invest?
  • Fund contact list. This includes lawyers, accountants, other professionals, etc.

 What are the fund’s 6 additional sets of data room contents, if this is NOT the managers’ first fund?6

  • Financial information i.e. free cash flow actuals and forecast scenarios; audited financial statements.
  • Examples of prior capital call and distribution notices.
  • Compliance manual.
  • ESG (environmental, social and governance) and DEI (diversity, equity and inclusion) policies.
  • Valuation policies.
  • Business continuity planning.

What technology does the fund use?

  • What software is used to manage the pool of potential portfolio companies? This pool could include: companies applying, companies discovered by the software, or companies contacted by the fund. Software could also manage the process and information of potential companies going through the selection and deal process.  What are the metrics?
  • What software is used to manage the data room made available for potential LP investors?
  • What data science tools are used in the selection and monitoring of portfolio companies? What are the metrics?
  • What AI tools are used in the selection and monitoring of portfolio companies? What are the metrics?
  • What tools are used to manage the relationship with LPs, including reporting to LPs?
  • What tools are used to support the LP Advisory board?

What valuation methodology does the fund manager use?

There are various methodologies, including:

  • International Private Equity and Venture Capital Guidelines 4
  • Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies – Accounting and Valuation Guide 5
  • Fund performance (in terms of cash distributions) relative to an ETF, such as S&P 500 or asset allocation fund.
  • Realizable value if sold the fund investment on the secondaries market.

What value does the fund manager assign to a portfolio company if there are no current buyers.  I’ve seen some funds assign value of what they hope or wish to achieve in the future.

The further reading section of this article provides reports from INSEAD regarding private equity valuation.

 Section – H What are the fees the fund earns?

What fees might be charged to investors, directly or indirectly?

Fund manager fees are specific to each fund.  Compensation is not always fully disclosed to LPs, especially if fees are charged to portfolio companies. Fees may include:

#1 Annual management fee: This could be based on: invested capital; or committed capital; or net asset value of the fund. The fees often range from 1.25% to 2%.  Some charge less.

#2 Fund’s administrative fees: These could include: legal, audit accounting.  Sometimes these are capped at 0.10% to 0.15% of assets.

#3 Annual performance fees: These can range from 15% to 30% of annual net profit.  Performance fees are often subject to:

  • hurdle rates (e.g. profit must exceed 5%-8%, compounded annually. The manager’s performance fee is based on profit after the hurdle rate);
  • high water mark (fund value exceeds previous highest value of the fund. Thus, if a fund drops in value, and then goes backup, performance fees are only paid after exceeding the previous peak value)
  • The degree to which portfolio companies meet or exceed environmental, social, sustainability, climate, and governance factors. Some funds say that they are focused on these factors.

#4 The fund may receive fees from the portfolio companies. Sometimes these fees reduce the management fees charged to investors.

  • Breakup fees: a portfolio company buyer decided to not do the acquisition.
  • Directors’ fees: portfolio companies may compensate board directors who are representatives of the fund.
  • Advisors: advisors to the fund and/or portfolio companies may charge fees
  • Affiliate services fees: Affiliates of the general partner may be paid for thing such as: underwriting, consulting, placement agent services
  • Placement agent fees: agents who are paid to sell LP partnership interest

#5 How much of the fund’s management fee is going into partners pockets vs helping to grow the long-term value of the fund?

  • Some funds make provide support people such as HR, finance, IT, etc. These are funded from the management fee, not by investors. Thus, short-term partner income is reduced.

What are your next steps?

  • Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
  • Review your overall investment thesis and thesis for the asset class your fund will reside in.
  • Create your template for your personal investment memo. This will capture your facts, analysis, and judgement as to why you want to make the investment in a fund. This will be helpful in the future, both as you look back and as you consider additional fund investments.
  • Prepare your overall plan. This will include specific decision-making processes and criteria, including those red flag items which result in immediate rejection of a fund candidate.
  • Assemble your team e.g. lawyer with experience in LP agreements (and governance and dispute resolution), tax advisor, other professionals to assist with the data collection and analysis. Your team might include psychologists.
  • Prepare your selection and evaluation plan and identify at what stage(s) the information will be collected and analyzed. Depending upon the number of investments you plan to make, you may decide to use LP management software.

Footnotes

1 What are the core components of talent, Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

2 Enhancing private equity manager selection with deeper data

https://caia.org/sites/default/files/enhancing_private_equity_manager_selection_with_deeper_data.pdf

3 Illustration of a market map, Atlantic Canada Fintech, 2022

https://atlanticfintech.ca/wp-content/uploads/2022/11/fathom4sight_atlantic-fintech_ENG-report_2022.png.pdf

4 International Private Equity and Venture Capital Valuation Guidelines, 2022 Dec

https://www.privateequityvaluation.com/Portals/0/Documents/Guidelines/IPEV%20Valuation%20Guidelines%20-%20December%202022.pdf

5 The American Institute of CPAs

https://www.aicpa-cima.com/cpe-learning/publication/valuation-of-portfolio-company-investments-of-venture-capital-and-private-equity-funds-and-other-investment-companies-accounting-and-valuation-guide-OPL

6 “Data Room Best Practices”, Silicon Valley Bank

https://www.svb.com/emerging-manager-insights/starting-a-fund/data-room-best-practices

 

What further reading should you do?

Valuation and return measurement in private equity. Insead 2011 May

https://publishing.insead.edu/case/valuation-and-return-measurement-private-equity-overview

Measuring private equity fund performance Insead 2019 Feb

https://www.insead.edu/sites/default/files/assets/dept/centres/gpei/docs/Measuring_PE_Fund-Performance-2019.pdf

Value Creation 2.0 A framework for measuring value creation in private equity investment Insead 2016 Feb

https://www.insead.edu/sites/default/files/assets/dept/centres/emi/docs/value-creation-2-0.pdf

“Due Diligence Questionnaire”, Business Finland Venture Capital

https://www.businessfinland.vc/4af44d/siteassets/venture-capital/sijoitusdokumentit/bfvc-due-diligence-questionnare.docx

Why are values, morals, and ethics important?

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

How to assess director and CEO talent – regarding values, morals, and ethics.

https://koorandassociates.org/values-morals-and-ethics/how-to-assess-director-and-ceo-candidates-regarding-values-morals-and-ethics/

How do asset managers assess private equity fund managers?

https://koorandassociates.org/creating-business-value/survey-how-do-asset-managers-assess-private-equity-fund-managers/

Institutional Limited Partners Association

https://ilpa.org/