The 4th Element
The 4th Element
There are three core elements to making money and pleasing investors. There is one more that makes all the difference.
Venture capitalists invest based on three core elements: the team, the product, and the market. These usually combine to form two standard investment criteria: the team-market fit (or founders-market fit) and the product-market fit. If you address a large market with the right team and an awaited product, your company will likely create financial value in the short-term—which is enough to satisfy VCs. But what if you aim for a higher purpose? What if it is not enough to fulfill your life?
Introducing ideology, the 4th element.
In their book Build to Last, best-selling authors Jim Collins and Jerry Porras argue that a core ideology is an essential element of visionary companies, like Sony, Hewlett-Packard, Merck, 3M, Johnson & Johnson, Boeing, Marriott. These companies have "a sense of purpose beyond just making money" and a clear ideology to support it: "This is who we are; this is what we stand for; this is what we are all about.”
Extract from Sony's ideology (source: Build to Last):
Sony is a pioneer and never intends to follow others. Through progress, Sony wants to serve the whole world. It shall be always a seeker of the unknown … Sony has a principle of respecting and encouraging one’s ability … and always tries to bring out the best in a person. This is the vital force of Sony.
Ideology's uniqueness
Ideology includes both core values and purpose, but according to Collins and Porras, "it should not be confused with specific cultural or operating practices." It is broad, non-operational, beyond profit, and long-lasting. "Ultimately, the only thing a company should not change over time is its core ideology" (Collins & Porras). Ideology does not follow market trends, like a brand does, nor depend on organizational constraints as corporate culture. It is founders-driven more than market-driven, so it may sound unproductive, irrational, or even detestable, but that does not matter. Ideology plays its role as long it is clearly articulated.
An unfair advantage
Imagine living the creation of your legacy. Ideology can bring you this kind of advantage. It turns long-term consistency into the influence and strength required to do great things. Then, great things compound to create impact, ongoing progress, and legacy. It can take the form of an enduring company or anything else impactful and memorable (e.g., a movement, a book, a contribution). Experiencing this journey is a source of continuous satisfaction and an antidote to mental fatigue. At a more operational level, hard things—like recruiting, fundraising, or selling—are easier for ideologically driven organizations.
Entry barriers
Collins and Porras ask: "How many companies have you encountered that articulate a clear ideology at the start of the company, yet cannot articulate of what products to make?" Very few! Entry barriers to articulating an ideology are higher than creating an original product or choosing a go-to-market strategy. An ideology's expression requires some life experience, maturity, and wisdom that one rarely gets before midlife. Young founders can still work on the three core elements and develop an ideology later. "In some cases, like Sony, the ideology derives from the founding roots. In some cases, like Merck, it comes from the second generation. In other cases, like Ford, the ideology went dormant and was rekindled in later years" (Collins & Porras). It is never too late.
Message to investors
Consider adding the 4th element to your investment rationale. Make it your brand and differentiate from the crowd, as renowned VCs do: A16z focuses on the team, Founders Fund on the product, and Sequoia Capital on the market. You can choose to focus on ideology (besides the three core elements). And in case you don't encounter enough companies meeting this criterion, you can still encourage the ecosystem to develop it. A good way to do so is to support a purpose beyond profit and give space to this idea. By doing that, you will increase your chance to attract and pick visionary companies in the making.
Message to founders
Make the 4th element your primary element.