Mastering the Executive Mindset for Tech Innovation and Business Growth
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Owners appoint directors to manage a company. Directors appoint a CEO to lead the company. The CEO appoints other high-level executives to help manage the functions of the company (CFO, COO, CMO, etc.) Owners give capital to the CEO in expectation of returns (financial, non-financial).
A CEO must always have a mindset that is built around this concept of managing capital and deriving the largest return on that capital for the owners.
It’s not so much about making the owners happy as it is about freeing up your mind to help you make the right important decisions.
The problem is that people, myself included, always fall into regular patterns and get consumed by certain tasks that tend to take up our thought process.
The Battlefield Metaphor: Focus on the Big Picture for Business Growth
So how do we get out of this trap of getting caught in the details? Let’s start by analyzing how people get in the problem to begin with. High achievers, like business executives, default to jumping in and helping when things need to be fixed. But, this isn't always the best move (it's usually not).
One of my favorite lines that highlights this problem comes from the show Billions, when a character is trying to get a sizable investment in their firm from the Firefighter's pension fund.
The manager explains how they’d be in the trenches doing the hard work to ensure that the returns are huge. The pension fund manager says, “Why would I want that?”
He then goes on to use a military metaphor where the rifleman’s only responsibility is to scan the battlefield for potential targets to engage. He or she cannot possibly see the entire battlefield and make strategy decisions, that’s not their job. The only thing they can see is down the barrel of their rifle sights.
On the other hand, the high-ranking officers must stay out of the battle and constantly scan the entire battlefield to ensure their resources are deployed in a way that gets them a high chance of success if a battle occurs. If they get involved directly, it hurts everyone. With no one guiding the larger decisions, the company falls risk to being out-maneuvered and captured or worse.
This, to me, is a great concrete and relatable way to think about how the split of vision must be done to master the executive mindset. Remove yourself as much as possible from the front line tasks, no matter how much you want to engage. It's not helping anyone when you do that.
In this example, people could die if the officers are not focused on positioning the team in the best manner possible. Your situation is likely not as dire; however, the consequences can still be massive. If an executive mismanages resources, it leads to layoffs, plant closures, and reduced investment, which directly impacts people’s lives.
Carrying the Weight of Decisions in the Executive Mindset
Having been laid off myself at one point in my career, I can tell you that these decisions are no laughing matter. Luckily, I was in a stable position, but I’ll never forget thinking about the others that may not be in as good a situation and how that can affect a family.
The reason I’m giving these examples is for an important reason. To build out an effective executive mindset, you need to carry the weight of your decisions at all times, but most importantly when you have to make tough decisions.
If you do this correctly, it will guide you to do what’s right ahead of time so that you’re not ever in the situation where bad things happen (layoffs, etc.).
Shifting to Valuation, Assets, and Return on Assets for Tech Innovation
Now I want to pivot to speak about another key concept for the executive mindset: the idea of valuation, assets, and return on assets.
Unless you have a financial background, you likely haven’t dived deep in these areas. What I mean by deep dive is to study and implement valuation models and techniques for years. This is typically what a financial analyst or M&A company spends their time doing.
You don’t have to be an expert in this, but you do have to know enough to appreciate looking through a lens of valuation in everything your company does. The key reason to do this is so that you make unbiased, open decisions about how the assets of the company are deployed.
This is especially important for established companies. They often get trapped in doing things the way they’ve always been done. The legacy business dominates the revenue generation, gets most investment, and therefore gets the most attention by everyone in the company.
This is amplified by the executive team because they typically always default to protecting the “cash cow” of the business because it’s how they most easily achieve their goals and increase their compensation.
However, they often have little to no true innovation and miss opportunities, which drives them to incremental change and over-paying to acquire other assets which actually destroys the value of the deal done.
Reframing Through Valuation Principles for Business Growth
To get around this, we go back to the concept of valuation, assets under management, and return on assets.
I had a professor explain this very simply to me. He said:
"If there’s another company out there doing what you do that generates more cash flow, has greater growth, and can leverage lower interest rates, you’re in trouble in the long run."
This is because in the long run company valuations, using techniques like discounted cash flows, are dominated by the perpetuity equation. The perpetuity equation says the present value of assets is equal to the cash flow of the company divided by the interest rate minus the growth rate.
So, to get a company’s valuation higher using this method, you want higher cash flow, lower interest rates, and higher growth rates. It’s one of the core methods of valuation.
The reason I’m focusing on this is because it’s invaluable for the executive mindset. What this does is decouple the traps that businesses fall into and it reframes everything into questions like:
- How does this affect our cash flow?
- How does it affect our growth or our ability to borrow?
This is critical to fairly evaluate new opportunities. What I’m getting at is the ability to say something like this:
“I know this business line is incredibly successful now; however, it has a risky future, and this new piece of technology is not as proven yet but it could replace it. The legacy business is valued at an all-time high right now—let’s put together a scenario where we sell it off, acquire the new technology, and use cash to lower our debt obligations and streamline operations to get our cash flow up and interest rates down.”
As an executive, you always want your team to have scenarios running to value the current business and new possibilities so that you can openly and fairly evaluate all options.
A Real-World Example: Netflix's Pivot in Tech Innovation
A great example of this? Netflix. They were adamant about mail service DVD rentals. However, when they started to evaluate and recognize the importance of streaming, they went all in on it eventually completely sacrificing their main business.
And now? They’re the leading player in a ~$160 billion market.
The old business? Mostly obsolete.
Key Take Aways: Becoming a Visionary Leader Through the Executive Mindset
To summarize, the most critical aspects of the executive mindset:
- Openly evaluate and make decisions on every aspect of the business by focusing on the resources (assets) under your control, the valuation of those assets, and the returns on the assets (cash flow, growth rate).
- The ability to carry the weight of your decisions and stay focused on high-level tasks.
If you focus on these key areas, it will start to transform you from an executive to a visionary leader that attracts the best talent and the most capital. It’s how I’ve been able to stay ahead of the game and consistently hit growth targets while attracting top talent.
And it all starts with mastering the executive mindset.
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