It has been said that all of story telling, every arc in human history, in fact, is ultimately a retelling of the same plot line. Aristotle is known for believing that central to plot is the pathos, or suffering, of a central protagonist – catharsis. If you think about it, it is remarkable thing that Brothers Karamazov and Little Red Riding Hood have plots that are nearly indistinguishable in their elemental form.
Our own literary epiphanies, the winning of our hearts and minds, are therefore almost certainly not a function of only overarching plot outline. Literature that changes our lives demands that a story supplants our paradigm and illumines truths that are as glaringly powerful and self-evident as they are generally overlooked in the daily course of our lives.
Gustave Flaubert, the famed French novelist, said that he wanted to write a book that rested on the beauty of the prose alone (paraphrased), as opposed to a reliance on a hypnotizing plotline. He was certainly right that prose matters but from a sales standpoint there is a reason that Madame Bovary is not as widely read as the Hunger Games amongst contemporary youth. It does highlight, however, that as with literature, the narrative of your “edge” as a manager, the presentation of how you tell your story, matters just as much as what the story is to begin with.
This second of 12 articles discusses both the “what” and the “how” of how you describe your value proposition, or edge, to investors.
What's your edge?
Here are important characteristics of what an “edge” does and does not look like:
1) Your edge is not a function of current conditions. Communicating your edge as something that could terminate as a result of circumstance evolution will not win the hearts of investors. For example, it is not compelling to suggest that your value proposition is partially a function of your trading fewer assets than a larger competitor. What happens when you grow?
Another example happens from time to time with discretionary managers. Representing that your contact base provides information flow difficult to access by others is concerning. This is a weak argument, among other reasons, because very few people stay in their current circumstances long and an investor cannot monitor your contact network. Your edge could deteriorate rapidly without anyone knowing of a change. Examine your value proposition carefully. Do not rely on circumstances as a defense to your potential value to an investor.
2) Do not claim uniqueness in approach. A sophisticated investor’s vocation is plane hopping the world and visiting with often hundreds of potential managers a year. They are in a position to evaluate what is unique; as a manager your self-critique is of little value. This does not mean that you are not unique; it means that you gain nothing by suggesting your self-proclaimed adulates to investors. The investor’s stream of thought is likely to drift towards attempting to disprove your claims rather than being impressed by your self-created reality. If what you do is genuinely unique, the investor will arrive at that conclusion regardless and proclaiming it yourself seems self-congratulatory.
3) Trading profitably is hard; state clearly how you can do it when so many others cannot. No one knows what is truly compelling about your approach better than you. Rather than throwing out a laundry list of potential reasons investors should care, be explicit in how your approach is profitable and thoughtful in your intuitive justifications. There must be an intuitive connection for investors as to why your approach works better than thousands of competitors. This does not mean that you should not share other aspects of your program that are sound and thoughtful. Be sure to represent all compelling aspects of your program while the driving thesis of your marketing materials and presentation is clear. Your articulation of “edge” must represent why you have the conviction you do, as opposed to a list of possibilities hoping the investor resonates with one of them.
Honing the message
Getting the “what it is” of your value proposition well tuned is critical, but delivering the message effectively can clinch investor interest. Here are thoughts on improving the presentation of your edge to investors.
About the Author
Grant Jaffarian is the CEO and founder of AlphaTerra, LLC, which helps identify top emerging manager talent for sophisticated investors as well as prepares managers for institutional money management. Prior to AlphaTerra, Jaffarian served as CIO at Efficient Capital Management, LLC, where he ran the firm’s manager search, due diligence and allocation processes while overseeing IT and Risk and serving on the Executive Management team. Prior to joining Efficient in April 2004, Jaffarian founded Petra Intraday Trading Systems, an emerging high frequency commodity-trading advisor. His career in the alternative investments field began in 2001 as a trader and researcher at Analytic Investment Management NV of Mechelen, Belgium. Jaffarian maintains a Series 3 license and an MBA from the University of Chicago’s Booth School of Business with Management and Economics focuses. Additionally, Jaffarian holds a double B.A. in English and Economics from Wheaton College, IL. Grant can be reached at:grant@alphaterrallc.com.