Why Fortune 500s Don’t Invest In Growth

This blog post visualizes an idea that I heard from Roger Martin at the Drucker Forum in Vienna last year. Traditional shareholders expect predictable growth without risk. Growth requires a venture capital type investment philosophy. Let me explain.

The stock market invests in certainty, efficiency and predictability. However, growth requires a more venture capital (VC) type of investment that deals with uncertainty, unpredictability and failure.

It comes back to this dichotomy that we’ve referred to a few times on the blog: the tension between exploit and explore in established organizations. The ambidextrous organization is not just an organizational design challenge, it’s also a financial challenge because it requires two substantially different types of investments.

Stock market type investments improve the efficiency of proven business models. VC type investments will be very different because it’s about investing in potentially new growth engines. If you invest in 10 potential business ideas, 2 might make it big; 4 will be mediocre; and 4 will fail outright.