“There is nothing in the world more powerful than a good story. Nothing can stop it. No enemy can defeat it.”
Who would have expected that Tyrion Lannister, in the last episode of Game of Thrones, would have an insight that every CEO and Investor Relations Officer needs to consider?
Public companies face unique challenges. They compete for capital and investor attention by disclosing an array of quantitative and qualitative information and the market responds with a daily assessment via the company’s share price. However, companies too often get sucked into the tactical march of their quarterly financial data and lose sight of a key question:
What’s the story?
Investment stories are a critical fabric for a public company. They provide a framework that binds together all the company’s data into a coherent view. An investment story answers key questions like: What does this company do? How will it grow? How competitive is it?
Human nature is to form preliminary opinions and then back test those opinions with analysis or experience. That’s why a good investment story is so important. It is the foundation of an analyst’s first view of a company.
A good investment story has a number of elements. First, it must be as simple and intuitive as possible. It should be understandable to generalists and not just the experts. After all, generalists wield the majority of investment dollars in the markets.
Second, investment stories must be credible. They must be grounded in the reality of the here and now. Grandiose visions are fine, but investors own shares today and need to understand the credible path from here to the grandiose destination. For example, a smart investor does not care about the total addressable market if the company doesn’t offer a credible story of how it can sustainably, successfully and profitability grow its share of that market.
That means investment stories that overly rely on future technological evolution as the basis for success won’t work. A good example has been the ride-sharing services touting autonomous driving as core to their investment story. But nobody knows when (or even if) autonomous driving will arrive in enough scale to support those companies’ plans. Watching The Jetsons as a child I saw that Rosie the robot maid could clean a house, but it wasn’t until about fifty years later I actually owned a small robotic vacuum cleaner. That’s why promises of autonomous driving simply won’t support an investment analysis today.
On the other hand, there is Beyond Meat (BYND) with a simple and credible investment story. Investors need not rely on leaps of innovative faith for BYND’s growth story to drive sustainable profits and that shows in the share price performance.
Obviously the difference in investment stories between Beyond Meat and the ride share companies underscore another reality: the story will always be constrained by the business model. The more challenged the model, the harder the investment story. The paradox however, is the weaker business model needs to work harder at crafting the investment story to be successful in the markets.
Tyrion Lannister was right. There’s nothing more powerful than a good story. That’s even more true as the world gets more complicated. To engage the market successfully as a public company, CEOs need to develop a credible, elegant and effective investment story. Simple to say, hard to do, but essential.