Books on Resource Allocation in a Growth Company

[Tompety03]

Board members - I am trying to find some good books, shareholder letters, or other materials on resource allocation in a growth company (basically the outsiders for growth companies).

 

I work for a mid-sized growth company (500 people) and we are wrestling with the trade-offs of investing in sales/marketing, product investments, and variable cost reductions.  I've read all the Amazon shareholder letters, which are good principles, but lacking in detailed examples or case studies.  Cimpress came to mind as a potential good resource. 

 

Any suggestions would be appreciated. Or if anyone works in a finance/strategy role in a similar stage company and wants to chat offline that would be very helpful.

 

Regards,

Chris

[Green King]

Board members - I am trying to find some good books, shareholder letters, or other materials on resource allocation in a growth company (basically the outsiders for growth companies).

 

I work for a mid-sized growth company (500 people) and we are wrestling with the trade-offs of investing in sales/marketing, product investments, and variable cost reductions.  I've read all the Amazon shareholder letters, which are good principles, but lacking in detailed examples or case studies.  Cimpress came to mind as a potential good resource. 

 

Any suggestions would be appreciated. Or if anyone works in a finance/strategy role in a similar stage company and wants to chat offline that would be very helpful.

 

Regards,

Chris

 

The first question you have to answer; are you in a immature or a mature industry?

If you are in a mature industry you follow standard practices and try to catch a change that will restart the industry dynamics like the cloud or the iphone.

If you are in a new industry you have to figure out the economics of your industry dynamics, is it winner take all or winners take all. Your main focus should be becoming the winner or joining forces early to helping a near winner to control the market.

In general capital allocation decision has two area of importance one being ROI and the other durable competitive advantage.  The amount of allocation is based on subjective judgement of the allocator with the most important factor being ROI. If your business is very sticky then invest heavily on sale and marketing once you get to scale or a certain market share you can just buy or copy the better product offering.

If not sticky lowest cost the best product wins. There is a market voting element where the investment community decides the winner with a high stock price or cheap capital.

But most importantly before any major decisions, you should a spend a lot of time with people in the front line since they have the best information flow. As far as I can tell capital allocation is best done by people who are closest to the action with the correct incentives.

You really need to be sure what is needed in terms of numbers to win and reward accordingly.   

capital allocation in large organizations also has a political element tread lightly and watch out career risks.

Amazon way in capital allocation deals mostly with businesses that require little to no tangible capital operate.

 

[Tompety03]

Green King - great feedback, thank you. We are the leader in a very new industry - the product is not that sticky (main point of differentiation is cost), so the focus is on both cost and making the product stickier. We have some geographic expansion opportunities where we could secure a market leadership position w/ limited competition for a few years. Its a difficult balancing act between geographic expansion, cost reduction, sales and mkting in existing geographies, and product investments and the ROIs on those are all interrelated. Agree with your point on listening to people on the frontlines that understand the customer the best.

 

Would you recommend any reading materials on the subject? I learn best through case studies/tangible examples from other companies.

 

Also, as mentioned earlier, if anyone on the board works in a finance role at a growth company and would be willing to connect offline that would be much appreciated.

 

Thanks,

Chris

[Green King]

I like this a lot.

https://www.amazon.com/Good-Strategy-Bad-Difference-Matters/dp/0307886239

 

There many cases out there. It is best to get to the granular details of your businesses and judge things on a case by case basis.

 

[Green King]

Also it doesn't look like you have same businesses characteristics as Cimpress.

[netnet]

Tom, I will PM you

[Tompety03]

Take a look at this book that is used by 3G Capital as the bible for cost allocation decisions.

 

https://www.amazon.com/Double-Your-Profits-Months-Less/dp/088730740X

 

Thanks - read this book a while back and really liked it.  It was helpful in thinking about how to identify excess costs and org structures.