Author: Tom Koor

Tom Koor

Is your company planning to fail? V5

Is your company planning to fail? V5

 What is the purpose of this article?

Enable Corporate Leadership (the board of directors, CEO, C-Suite, and any controlling shareholders) to discuss the degree to which your company is planning to fail.

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: Is your company planning to fail V5

What are the critical learnings in this article?

  • Most companies are successfully executing their plans to fail. Most companies fail or produce poor investor returns. (Read “Your company will fail”, which is the first article under “What further reading should you do?”)
  • Plans are comprised of two parts: what is in them and what’s not in them. Plans reflect decision made and decisions not made.

The board of directors lack the knowledge and skills to make decisions.

  • A McKinsey survey of board directors showed that most had little understanding of their companies. Only 16% said directors strongly understood the dynamics of their industries; 22% said directors were aware of how their firms created value; and 34% said directors fully comprehended their companies’ strategies.1
  • A survey of board directors asked how many directors agreed that their members collective skills and backgrounds are appropriate for their organization’s needs: 54% of directors of high performing companies agreed, 40% of directors of low performing companies agreed.2

The board of directors and CEO lack the capabilities to align HR and IT with the strategy and ensure that most employees are working to achieve the strategy.3

  • 67% of HR and IT organizations are not aligned with business unit and corporate strategies.
  • 60% of organizations do not link their financial budgets to strategic priorities.
  • Incentive compensation is not tied to achieving strategy (70% of middle managers, over 90% of front-line staff).
  • 95% of employees are not aware of, or do not understand the strategy.

Corporate decisions and actions are not fact-based.

Leadership has a “seriously inaccurate perception of reality”.4

Leadership:

  • doesn’t measure the value the company is creating nr the potential value it can capture.5
  • makes the incorrect assumption that the main historical competitors will be the main future competitors.6
  • cannot learn from other companies’ failures or successes.7
  • is focused on the company mission and doesn’t hear what their customers are saying.8
  • thinks they have all the answers.9
  • fires anyone who questions plans or strategies. 10
  • relies on yesterday’s answers to solve current problems.11

 Corporate leadership has poor decision-making behaviours. 12

  • Good analysis done by good managers with good judgement produces poor strategic decisions.
  • Only 28% of executives thought good strategic decisions were frequently made.
  • 53% of business improvement is due to the quality of the decision-making process, only 8% is due to the quality and detail of the analysis.
  • One cause of poor decision-making behaviors is that leadership neither recognizes their biases nor takes steps to overcome biases in decision-making.

Corporate leadership does not understand the difference between risk and uncertainty.13

  • Risk-based decisions are determined by probability determined from analysis of historical facts.
  • With uncertainty, there are no historical facts from which to derive a probability.

The confusion between risk and uncertainty results in leadership believing they are making fact- based analytical decisions when the decisions are actually based on guesses and hopes.

Corporate leadership is not competitively differentiated in its core components of talent.

The core components of talent include:14

  • Self awareness, both internal and external
  • Character, including values, morals, and ethics.
  • Relationship skills
  • Communications, especially two-way communications
  • Crystallized intelligence
  • Fluid intelligence
  • Cognitive skills
  • Ability to quickly learn and unlearn
  • Creativity

Corporate leadership has five biases resulting in poor decision-making.15

  • Insufficient thought before action.
  • Tendency towards inertia, if uncertain.
  • Misaligned incentives, misunderstanding of strategies and objectives, and emotional attachments to personal perspectives.
  • Preference for harmony over conflict, leading to group think.
  • Recognizing patterns that do not exist.

Companies that have financial success develop behaviours leading to their decline.16

  • Success leads to entitlement and arrogance, believing success will occur no matter what happens.
  • Corporate leadership neglects focus, understanding, and renewal of the root causes of success.
  • “What” replaces “Why” (“We’re successful because we do these specific things.” Replaces “We’re successful because we understand why we do these specific things and under what conditions they would not longer work”. Corporate leadership is no longer inquisitive and learning.
  • Corporate leadership believes success is entirely due to their superior capabilities, and that luck had no role.

 Executive leadership development programs are broken. 

A survey of more than 500 global executives showed that only 11% strongly agreed their leadership development programs achieved results. What were the program flaws?17

  • Not specific to the companies’ strategic plans and drivers of business performance (e.g. turnaround, multiple M&As, organic growth, etc.).
  • Not organization-wide and not at all levels within the organization.
  • Not using digital learning embedded in day-to-day workflows. Too much use of the old teacher and classroom model.
  • Leaders did not use social media (blogs, video messages, etc.). to communicate with staff.
  • Senior leaders did not act as sponsors, mentors, and coaches.

 Companies do not recover from crisis.18

  • 20% of companies grow from insurgency to incumbency, but then two-thirds of them stall out and less than 1 in 7 stall-outs recover.
  • At any given moment, 5%-7% of companies are in free fall or about to tip into it. Only10%-15% of companies pull out of free fall.
  • 94% of large company executives site internal dysfunctions as their key barrier to continued profitable growth.

During turbulent times, the number of sinking ship companies increases 89%.19

 Founders are often the cause of start-up failures20

  • 65% of the failures of high-potential start-ups are due to people problems: relationships, roles and decision-making, and splitting the income.
  • More than 50% of founders are replaced as CEO by the third round of financing. In 73% of these founder replacements, the CEO is fired rather than voluntarily stepping down.
  • The founder’s passion, confidence and attachment to the start-up is initially a great strength. Founders often refuse to revise their strategy, misjudge the need for additional skills, and make decisions that don’t reflect the current situation.

 Leadership is the underlying cause of start-up failure.

The top nine reasons for start-up failures were identified by CB Insights. 21 I’ve shown below my point-of-view as to why leaders and leadership were the root cause.

  • 42% no market need – leaders did not validate that there were large number of potential cash paying customers who perceived they had needs and problems they were willing and pay for.
  • 29% ran out of cash – leaders did not understand cash flow management
  • 23% not the right team – leaders did not understand the talent required, how to hire, retain, and develop the right talent as the company evolved.
  • 19% get outcompeted – leaders did not understand how customers and users perceived the competition’s value propositions.
  • 18% pricing/cost issues – leaders did not understand how customers perceived their company’s value proposition.
  • 17% poor product – leaders did not understand how to oversee solution design and rollout to ensure meeting customers perceived value proposition.
  • 17% need/lack business model – leaders did not understand that a business model is needed or were unable to define one.
  • 14% poor marketing – leaders did not have marketing skill, understand their role in marketing, know the necessary cash to marketing.
  • 14% ignore customers – leaders did not believe it was important to listen to customers and take action based on what customers were saying.

The appropriate VME (Values, morals, and ethics) are not understood or agreed upon.

  • Inappropriate VME can result in:
  • Your company losing your social license to operate.
  • Your ability to attract and retain appropriate talent.
  • Reputation damage which impacts sales
  • Legal action by governments and others.
  • etc.

What are your next steps?

  • Define your terms and concepts to enable a common understanding.
  • Prepare your own set of evaluation criteria. The above reasons for failure may form some of your evaluation criteria.
  • Have your company assessment by members of your company’s ecosystem.
  • Analyze the results. Probe deeply into anything not related to talent to ensure talent is not actually the root issue.

What further reading should you do?

“Your company will fail”, Koor and Associates

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

“Traditional corporate governance dooms your company to failure. V2”, Koor and Associates

https://koorandassociates.org/2023/03/17/traditional-corporate-governance-dooms-your-company-to-failure-v2/

“Traditional strategic planning dooms companies to failure”, Koor and Associates

https://koorandassociates.org/strategy-and-strategic-planning/traditional-strategic-planning-dooms-companies-to-failure/

“Traditional risk management dooms your company to failure”, Koor and Associates

https://koorandassociates.org/corporate-governance/traditional-risk-management-dooms-your-company-to-failure/

“Traditional business transformation dooms your company to failure”, Koor and Associates

https://koorandassociates.org/business-transformation/5920-2/

“What are the three greatest risks to your company?”, Koor and Associates

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

 

 Footnotes

1 “Corporate Boards need a facelift”, Eric Kutcher, (McKinsey Partner) McKinsey website, May 4, 2018.

2 “A time for boards to act” McKinsey Survey 2018 March

3 “Creating the Office of Strategy Management”, Harvard Business School; paper 05-701, by Robert Kaplan and David Norton

4 Sydney Finkelstein, Why smart executives fail, Penguin Publishing Group, 2004, Chapter 6

5 ibid., Chapter 6

6 ibid., Chapter 6

7 ibid., Chapter 7

8 ibid., Chapter 7

9 ibid., Chapter 9

10 ibid., Chapter 9

11ibid., Chapter 9

12 “The case for behavioral strategy”, McKinsey Quarterly, 2010 Number 2

13 Adapted from “20/20 foresight: Crafting strategy in uncertain times”, by Hugh Courtney

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

What are the core components of talent? V4

15 “Think again: Why good leaders make bad decisions”, by Sidney Finkelstein, Jo Whitehead, and Andrew Campbell, Harvard Business Review Press, 2009

16 “How the mighty fall”, by Jim Collins

17 “What’s missing in leadership development?”, Claudio Feser, Nicolai Nielson, and Michael Rennie, McKinsey Quarterly, August 2017

https://www.mckinsey.com/featured-insights/leadership/whats-missing-in-leadership-development

18 “The founders mentality”, by Chris Zook and James Allen, 2016

19 https://www.bain.com/insights/the-new-normal-is-a-myth-the-future-wont-be-normal-at-all/

20 “The Founder’s Dilemmas”, by Noah Wasserman.

21 “Top 20 reasons start-ups fail”, CB Insights, Oct 7, 2014

Tom Koor

How profitable are search funds? V2

How profitable are search funds? V2

 What is the purpose of this article?

Help investors think about whether to invest time and money into the search fund asset class.

The audience for this article includes: investors considering search fund investments, and search fund founders.

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: How profitable are search funds V2

What are the critical learnings in this article?

  • The IRR for traditional search funds in Canada and the US has been 35.2%.
  • Traditional search fund investors provide far more than capital. They also provide coaching, mentoring, board directorships.
  • You need to fund between 30 to 45 searchers, to have a high chance of approaching the IRR for the asset class as a whole.

What is a search fund?

What is a traditional search fund?1

An investment vehicle formed by one or two entrepreneurs (i.e. “searchers”) along with investor mentors.  They search for, acquire, and lead a privately held company for the medium to long-term. The searcher and investors exit at that time.  Investors fund the search costs and the acquisition costs.  The entrepreneur becomes the CEO after the acquisition.

  • These investors are very actively involved as: coaches, mentors, advisors, and board directors. The investors do far more than provide capital.
  • The searchers typically have an MBA.
  • The searchers search for a private company to acquire, lead, grow, and sell.
  • It takes 2-6 months to find the investors and capital to launch the search fund.
  • The search takes 12-24 months.
  • Growing the value of the company takes 4 to 7 (or more) years.
  • The exit process takes 6 months.

What are alternative search fund models?2

  • Self-funded search: the searcher funds the search themselves, without investors.
  • Single investor model: only one investor e.g. single professional investor, family office, private equity firm, etc.
  • Long-term hold: hold for more than 10 years.

 How profitable has the search fund asset class been

The following metrics are for the U.S. and Canada

  • 681 traditional search funds formed from 1984 through to Dec 31, 20233

The IRR has been: 4

  • 1% for all investments made, and 33.0% if the top 5 companies were excluded.
  • These IRR returns have been relatively constant from 2008 to 2023.

66% of search funds with an investment return lost some or all their investor money.

The following analysis is based on the data in “2024 Search Fund Study – Research Overview”

524 search funds have concluded

358 search funds have an investment return to investors. This excludes search funds that were still operating.

196 lost all investor money, due to no acquisition

162 exits 40 of which were negative

236 search funds (of the 358 with an investment return) lost some or all their investor money

How many search funds do you need in your portfolio?

You need a large number of search funds in your portfolio. Why?  Many funds lose money with their acquisitions or have poor returns.  You need a large number to reduce the risk of too many poor performing funds.

A Monte Carlo simulation of search fund performance suggests a portfolio size of 20 to 30 funds that have made acquisitions.6 Given that 37% of search funds don’t make an acquisition, you’d need to fund between 32 to 48 searchers, to have a high chance of approaching the IRR for the asset class as a whole.

What is the capital you require?

The following is my brief analysis of the capital you require for your search fund portfolio to approach the IRR returns of the asset class as a whole.

  • As an investor, your initial search fund investment might range from $25,000 to $50,000. Funding 32 to 48 searchers would require from $800,000 to $2,400,000.
  • Additional funds would be required to support acquisitions.
  • In the traditional search fund model, you must provide much more than capital: you need the skills and knowledge to: coach, mentor, advise, and deliver value on the boards of search funds.

If you have a small portfolio, you have a high chance of returns below the asset class as a whole.

What are your next steps?

  • Review your investment thesis, asset allocation, and investable assets to determine if you have the capital to create a portfolio of search funds.
  • Assess your skills, experience, relationships, capabilities, and time availability to determine your potential to coach, mentor, and provide value as board director.
  • Consider if you’ll create and manage a portfolio of search funds OR if you’ll invest in a fund which has a large portfolio of search funds.
  • If you’re considering investing in a fund with a portfolio of search funds, you should: Build a financial model which considers the fees and exit times of the fund; and create a due diligence process to assess the fund’s: talent, processes, business model, and historical results.
  • Regardless of the path you decide to take you must also assess the talent of the other investors. Why? The success of the traditional search fund model depends on the ability of the other investors to provide value via coaching, mentoring, and board directorships.

Footnotes

1 Sara Heston and Peter Kelly, “2024 Search Fund Study – Research Overview”, Stanford Graduate School of Business. Page 3

https://www.gsb.stanford.edu/faculty-research/case-studies/2024-search-fund-study

2 Ibid., 27

3 Ibid., 4

4 Ibid., 8

5 Ibid., 5

6 Andrew Locke, Diversification in search fund investing: The only free lunch?

https://www.linkedin.com/pulse/diversification-search-fund-investing-only-free-lunch-andrew-locke/

 What further reading should you do?

Stanford Graduate School of Business – search fund primer

https://www.gsb.stanford.edu/experience/about/centers-institutes/ces/research/search-funds/primer

Search Funds – What has made them work? Rob Johnson, IESE

https://media.iese.edu/research/pdfs/ST-0357-E.pdf

International Search Funds – 2024 – Selected Observations, IESE Business School, University of Navarra

https://www.iese.edu/media/research/pdfs/ST-0658-E

Tom Koor

Your company will fail. V3

Your company will fail. V3

 What is the purpose of this article?

This article enables a discussion about your company’s long-term survival and competitively differentiated returns to investors.

The audience for this article includes: boards of directors, CEOs, the 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: Your company will fail. V3

What are the critical learnings in this article?

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

Most companies will not survive.

Few major companies survive:

  • 16% of major companies in 1962 survived until 1998.1
  • Of the 500 companies in the S&P 500 in 1957, only 74 remained on the list in 1997. Only 12 of those 74 outperformed the 1957-1997 S&P index.  An investor who put money into the survivors would have done worse than someone who invested only in the index.1
  • 31% of Fortune 500 companies went bankrupt or were acquired from 1995 to 2004.2
  • 52% of Fortune 500 companies went bankrupt, were acquired, or disappeared between 2000-2015.3
  • 50% of the S&P 500 will not be on the list in 10 years’ time.4

 Most public companies will not survive.

  • A Fortune 500 company will survive an average of 16 years.5
  • The typical half-life of a North American public company is 10 years.5
  • Global public companies with $250 million+ market cap have a typical half-life of 10 years.5
  • 28,853 companies traded on US public markets from 1950 to 2009. Half life was only 10.5 years.6

Global CEOs recognize that there’s a good chance their companies will not survive.

  • In 2023, 45% of global CEO thought that their company would be financially viable for 10 years or less, if it kept running on its current path.7
  • In 2024, four in ten CEOs believed their company will no longer be viable in ten years if it continues on its current path. The majority of CEOs believed they will not be in their current role in five years time. 8

Most companies will not recover from a crisis.

Companies do not recover from crisis.9

  • 20% of companies grow from insurgency to incumbency, but then two-thirds of them stall out and less than 1 in 7 stall-outs recover.
  • At any given moment, 5%-7% of companies are in free fall or about to tip into it. Only10%-15% of companies pull out of free fall.
  • 94% of large company executives site internal dysfunctions as their key barrier to continued profitable growth.

During turbulent times, the number of sinking ship companies increases 89%10

 Few major companies have sustained value creation.

Few major companies have sustained value creation:

  • McKinsey analyzed the world’s 2,393 largest corporations from 2010 to 2014. The top 20% generated 158% of the total economic profit (i.e. profit after cost of capital) created by those corporations.  This was an average economic profit of $1,426 million per year. The middle 60% generated little economic profit, an average of $47 million per year. The bottom 20% all generated negative economic profit, with an average loss of $670 million per year.11
  • Less than 13% of global companies had sustained value creation in the 1990s.12
  • 12% of public companies had sustained value creation from 2002 to 2012.13
  • Mark Leonard, CEO of Constellation Software, in his final annual CEO letter said: “Qualified and competent Directors are very rare, and not surprisingly, the track record of most boards is awful. According to the 2017 Hendrik Bessembinder study of approximately 26,000 stocks in the CRSP database, only 4% of the stocks generated all of the stock market’s return in excess of one-month T-Bills during the last 90 years. The other 96% of the stocks generated, in aggregate, the T-Bill rate over that period. This means that 4% of boards oversaw all the long-term wealth creation by markets during that period. Even more disturbing, the boards for over 50% of public companies saw their businesses generate negative returns during their entire existence as public companies.”14
  • John Rekenthaler study of the largest 5,000 US companies stock prices rom Jan 2011, to Dec 2020 showed that after 10 years, 42% ended in the black, 36% lost money, and 22% had disappeared. 15
  • In 2023, 0.4% of large companies had SVC (Sustained Value Creation) for 10 years. 10% had done it for 8 years. Half the companies had 6% or less annual shareholder return over 10 years. 16

Major changes almost always fail or create limited value.

  • Only 12% of major changes produce lasting results. 17
  • 50% diluted the value of the company.18

 Most large-scale tech programs fail

More than two-thirds of large-scale tech programs are not expected to be delivered on time, within budget, or within their defined scope. 19

Most public companies underperform the indices.

  • The 1,000 biggest publicly traded US stock from January 2011, to Dec 2020, 80% underperformed the Morningstar U.S. Stock index.20
  • In 2023, 72% of the stocks in the S&P 500 index, underperformed the index.21

Most actively managed public market funds underperform the indices.

Over a 20-year period, over 93% of large cap US funds underperformed the S&P 500 index.22

The average hedge fund underperforms the public market indices.23

  • From 2011 to 2020, the average hedge fund underperformed the S&P 500 every year.
  • In 2007 Warren Buffet made a bet with Protegé Partners that an S&P 500 index fund would outperform a group of hedge funds. Protegé Partners selected 5 fund-of-funds, which were invested in a total of 200 funds. In the 2008-2017 time period, a $1 million investment with Protegé Partners selection would have earned $220,000. The S&P 500 index earned $854,000. In 9 of the 10 years, Protegé Partners selection under performed the S&P 500 index. Warren Buffet won the bet.

Many private equity funds underperform the public market indices.

In the 10 year period ending 2024, the top quartile of private equity funds significantly outperformed the S&P 500 index. The bottom quartile significantly underperformed the S&P 500 index.  If you could have predicted which PE funds would end up in the top quartile, you would have beaten the S&P 500 index. If you could have predicted the top quartile stock in the S&P 500 index, you would have beaten the S&P 500 index. 24

Many venture capital funds underperform the public market indices.

Half of VC funds underperform the public markets.25

What are your next steps?

  • Define the words/concepts/data you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
  • Your next steps will vary, depending upon the type of company you are. E.g. public, private, investment fund (e.g. Private Equity, VC fund, etc. The following suggestions should be reviewed an adapted to your situation.
  • Ask the question “Will your company be economically viable in 10 years if your company continues the current course? If yes, why? If not, why not”. Ask: your major shareholders, your board of directors, your C-Suite.
  • Review the results of your scenario planning. You must have at least three scenarios: your company fails, your company is wilding successful, the future based on currently approved plans and
  • Based on the above analysis, what changes are needed to reduce the chance of your company failing. Step one is to consider the talent on the board of directors. Step two is to consider the talent in the C-Suite. Additional steps are specific to your situation.

Footnotes

1 “Creative Destruction – why companies that are built to last, underperform the market”, by Richard Foster & Sarah Kaplan

2 “Unstoppable” by Chris Zook, 2007, page 7

3 Accenture 2016

4 “2018 Longevity Report” by Innosight Consulting

5 “Corporate Longevity”, Credit Suisse, February 7, 2017

6 “Scale” by Geoffrey West, 2017, Penquin Press, New York, Page 402

7 PWC’s 27th annual global CEO Survey

https://www.pwc.com/gx/en/ceo-survey/2024/download/27th-ceo-survey.pdf

8 PWC’s 28th annual global CEO Survey

https://www.pwc.com/gx/en/issues/c-suite-insights.html

9 “The founders mentality”, by Chris Zook and James Allen, 2016

10 Bain website article “The “New Normal” Is a Myth. The Future Won’t Be Normal at All”

https://www.bain.com/insights/the-new-normal-is-a-myth-the-future-wont-be-normal-at-all/

11 Chris Bradley, Martin Hirt, and Sven Smit, “Strategy to beat the odds”, McKinsey Quarterly February 2018, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/strategy-to-beat-the-odds

12 “Profit from the Core” by Chris Zook. 1,800 companies in seven countries with sales in excess of $500 million analyzed.  Criteria were: 5.5% after inflation sales growth; 5.5% real earnings growth; total shareholder returns exceed cost of capital.

13 Christoph Loos, CEO Hilti Group, Swiss AmCham Luncheon, September 1, 2015.  Analysis based on about 2,000 public companies in 2002 with revenues greater than $500 million.  Sustainable value creation defined as: real revenue growth exceeding 5.5% per year, real profit growth exceeding 5.5% per year, and earning cost of capital.

14 https://www.csisoftware.com/docs/default-source/investor-relations/presidents-letter/presidents-letter-april-2018-final.pdf

15 “How many stocks beat the indices” John Rekenthaler, April 26, 2021 Morningstar

https://www.morningstar.com/markets/how-many-stocks-beat-indexes

16 “Sustained value creation – the test of the best”  Bain Jan 21, 2025. Bain’s SVC definition: net profit exceeds cost of capital and real top line growth

 https://www.bain.com/insights/sustained-value-creation-the-test-of-the-best-infographic/

17 Transformations that work, Harvard Business Review May June 2024 Michael Mankins, Patrick Litre, Bain Partners

https://hbr.org/2024/05/transformations-that-work

18 “It’s 8-to-1 against Your Change Program”, Bain website, Managing Change Blog, 2017 June 23

https://www.bain.com/insights/its-8-to-1-against-your-change-program-how-to-beat-the-odds/

19 November 13, 2024  Boston Consulting Grouphttps://www.bcg.com/publications/2024/most-large-scale-tech-programs-fail-how-to-succeed#:~:text=BCG’s%20latest%20research%20shows%20that,year%20for%20a%20single%20program.

20 How Many Stocks Beat the Indexes? Unlike the children of Lake Wobegon, most companies are below average. John Rekenthaler Apr 26, 2021

https://www.morningstar.com/markets/how-many-stocks-beat-indexes

21 Marketwatch, Dec 30, 2023

https://www.marketwatch.com/story/a-record-share-of-s-p-500-stocks-have-underperformed-the-index-in-2023-as-weirdest-bull-market-in-decades-marches-on-5d3b4cf5

22 SPIVA U.S. Mid-Year 2023 report

https://www.spglobal.com/spdji/en/spiva/article/spiva-us/

23 “The S&P 500 index out-performed hedge funds over the past 10 years. And it wasn’t’ even close”

https://www.aei.org/carpe-diem/the-sp-500-index-out-performed-hedge-funds-over-the-last-10-years-and-it-wasnt-even-close/

24 CCC Google Gemini Deep Research Analysis, March 25, 2023

25 Robert S. Harru, Tim Jenkinson, Steven N. Kaplan, and Ruediger Stucke

Has persistence persisted in private equity?

November 2020, Becker Friedman Institute for Economics at University of Chicago

https://bfi.uchicago.edu/wp-content/uploads/2020/11/BFI_WP_2020167.pdf

What further reading should you do?

“Is your company planning to fail?”, Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

“Traditional corporate governance dooms your company to failure”, Koor and Associates

https://koorandassociates.org/corporate-governance/5786-2/

“Traditional risk management dooms your company to failure”, Koor and Associates

https://koorandassociates.org/corporate-governance/traditional-risk-management-dooms-your-company-to-failure/

“Traditional strategic planning dooms companies to failure”, Koor and Associates

https://koorandassociates.org/strategy-and-strategic-planning/traditional-strategic-planning-dooms-companies-to-failure/

“Traditional business transformation dooms your company to failure”, Koor and Associates

https://koorandassociates.org/business-transformation/5920-2/

“Scenario planning – what is it?”, Koor and Associates

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

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