Growth needs capital. Value creation determines where it flows.

Capital does not always flow to where it is needed. It flows to where the logic of value creation is credible. Capital is constantly weighing up opportunities across companies, industries and markets – increasingly on an international scale. A company must be able to demonstrate why it, specifically, is well positioned to turn a market opportunity into sustainable value creation. From an investor’s perspective, it is not enough for a company to say that “there’s a need for growth” or that “the market is attractive”.

In Finland and across Europe, there is much discussion about growth, investment and competitiveness. This is an important debate. Without investment, there can be no new growth, and without capital, those investments will not happen.

Yet the discussion often starts with the question of where companies can find the financing they need to grow. There is another, equally important question: why should capital choose one company over another?

Strong growth strategy is not yet an investment reason

A company may have an ambitious growth strategy, interesting technology, a strong market position and a skilled management team. All of these can be important requirements for success.

However, investors need to understand how these strengths translate into a profitable business and a return on invested capital.

How do strategic choices strengthen the company’s competitive advantage? How does competitive advantage help a company win customers, increase sales and improve profitability? And how is this reflected in cash flow, return on capital and shareholder value?

This logic should be clear to the company’s management and Board before it is communicated to the capital markets.

If, for example, a company is pursuing growth through international expansion, it should be able to explain why the chosen market is attractive for that particular business, how it intends to win there and what investment the growth will require. It is equally important to understand when that growth is expected to begin translating into profitability and cash flow, and what evidence the company will later use to demonstrate that the strategy is working.

This is how individual strategic objectives begin to form a coherent value creation logic.

This is not primarily about communications

Even good communication alone does not make a company an attractive investment, nor is a good slogan enough to convince an investor.

It starts with a shared understanding among management and the Board of how the company intends to create value, which strategic choices are critical to that value creation, and what evidence will demonstrate that those choices are delivering results.

Only then can the strategy be translated into a clear and coherent proposition for the capital markets.

The capital markets perspective should not be introduced only once the strategy is complete and needs to be turned into an attractive investor presentation. It should already play a role in the strategy process itself, as one way of testing the robustness of the choices being made.

If a company’s value creation logic is difficult to explain, the problem may not be the story. The problem may lie in the strategy itself.

Competing for capital also means competing for market confidence

Finland needs growth, investment and companies with the ambition to grow. We also need well-functioning capital markets and sufficient capital to finance corporate growth.

But alongside the supply of capital, we need companies that investors want to commit their capital to.

Competition for capital is therefore not won by whoever tells the best story. Ultimately, it is won by the company with the most credible value creation logic, and the ability to demonstrate that it works.

When considering a growth strategy, companies should therefore ask not only where they will find the capital required to fund their growth, but also: why should capital choose us?

IR Partners is a partner of choice in capital markets communications and strategic communications. We act as a trusted adviser to the management teams of listed and privately held companies in demanding situations and at strategic turning points. If you are considering your company’s growth strategy, value creation logic or position in the capital markets, we would be pleased to continue the conversation. Please contact Tiina!

Tiina Olkkonen

Chair of the Board, Senior Advisor, Founding Partner

+358 40 827 8844 tiina.olkkonen@irpartners.fi