Capital Intelligence: How Great CEOs Use Optionality and Control to Run at Speed

Last installment I finished out the post talking about the precision our clients deliver through their products and the optionality and control they’re learning to develop in their companies. I admire the CEOs and founders we get to work with and marvel at what they imagine, design, develop and scale. They’re so cool in fact, I want to brag about their inventions to illustrate the next-level precision and control that they’re delivering to their enterprise and government customers. 

These are customers with quality and precision criteria that only the best of the best can deliver against. Companies like Airbus, Lockheed Martin, Boeing, Telsa, Space X, Anduril, Dow, DIU, World Wide Technologies, Vodafone, Merck, Abbott Labs, Apex Space, Umbra, Archer Aviation, BAE, NASA, iSpace and more. These companies require precision and control and extreme tolerances in extreme environments.

• Psionic is working on precision guidance to land on the dark side of the moon.
• Astra is developing a platform to launch into space from anywhere on the globe and release a payload anywhere in orbit.
• Ondas can intercept an adversarial drone with a protector drone.‍
• Hoonify can set up an AI infra scaling cluster in minutes.

Crazy precision all around with crazy control.

What Optionality Means for Founders and CEOs

Optionality is a new one for a lot of people so let’s make sure we understand what it means.

op·tion·al·i·ty

noun

1. the quality of being available to be chosen but not obligatory

This is about choice, the awareness and maintenance of available options over time and the acquisition of additional options as you accelerate your growth. Choice is not often a luxury afforded to the founding team of a startup. Time, energy, focus and money are all scarce resources inside of scaling businesses and maintaining choices over time can be a drain on energy and attention. Startup life is: focus and choose, choose and focus. 

Like me, a lot of founders I know like speed - on the bike trail, regatta course, in the skies or on the slopes. Pushing the envelope in tight spaces at speed is often a part of the founder mindset. Skiing at speed in a tight space among others doing the same is fun and dangerous. You are focused, you are making hundreds of choices in rapid succession but you are also exercising optionality. You’re assessing paths, speeds, maneuvers and compiling choices into an plan that evolves so fast that it doesn’t feel like a plan at all. You do it enough and it becomes unconscious. This is skiing in flow and it is amazing. 

The best skiers move down the hill and maintain an evolving optionality as they accelerate. There is almost always another choice, an escape hatch or a release valve and in a situation where there isn’t, they tend to move through that section as quickly as possible. To good athletes moving at speed, optionality of the path - the quality of being available to be chosen - is an input to instinct.

Capital Intelligence: Optionality as an Executive Skill

The mastery of optionality as a CEO is a component of what I refer to as Capital Intelligence. As you lead your scaling company along its path, you’re constantly assessing, measuring and analyzing to maintain maximum choice for minimum energy output ($$$). You rely on your team to be masters of their respective domains and your systems to aggregate that mastery into knowledge and awareness so you, as a leadership team, can respond as quickly as the skier in the chute. 

That’s the dream as a CEO but it isn’t easy. There is a lot of noise, conflicting priorities and a changing landscape to deal with. Those are the table stakes for this high speed race. The skier, biker, pilot or racer has a deep trust and connectivity with the equipment delivering information to them. Skis and boots, shocks and handlebars, sails and tiller, yoke and pedals. There are only so many inputs you can handle and only so many data points that matter. Speed, distance, altitude, depth. 

The same is true for a leadership team in a startup. You need to have, at your fingertips, at all times, in your heads-up display the metrics that allow you to move at speed and to maintain optionality and control.

The Metrics That Matter: Cash, AR, and AP

What is the equivalent? What are the metrics that matter? Cash, AR and AP. Those are the three that matter. 

What about revenue?! AR is better, revenue and cash are nearly never equal. There are rules to recognize revenue that obscure how and when it becomes cash. Current Cash + AR (with dates and values) - AP (with dates and values) = future cash. That is the OODA loop of running a business at speed. 

Once you have that data and you define your options you can orient yourself in your current environment and make choices. You can maintain the course or you can take a tack and exercise the optionality you’ve acquired through the knowledge of your attack vector. If you don’t know the data, you are flying blind, skiing with unbuckled boots, luffing.

Again, in SaaS, relatively simple, predictable and consistent. In industrial supply chains, really hard. These metrics are for the leaders, the pilots, the skippers. They’re not for accounting, passive boards, new investors or the IRS. They’re how you fly the plane. Yes, you need to know revenue and opex and the state of the balance sheet but in the chute, these metrics don’t matter. I don’t know any CEO worth a damn that runs their business with their financials but every great CEO I know knows these key metrics cold and knows how they translate onto their income statement and balance sheet and convert to GAAP.

Why Optionality and Control Change Everything

So when you have this dialed in and you maintain optionality and control what is different? Everything. Your leadership team runs differently, you invest differently, you have greatly liquidity and are able to invest more frequently, you protect your ownership and that of your early investors and leaders, margin improves, WACC goes down (subsequent blog) and the feedback loop of optionality and control becomes self reinforcing. 

How? It is all about the velocity of money and Burns and Turns the subject of the next installment.

‍