When most people hear the word portfolio, they think about a portfolio of stocks and bonds that delivers a financial return to the owner. They might think of their own 401k where they invest consistently with the goals of a growing a big nest egg that they can cash out when they retire.
Investing money in the stock market to grow your future bank account is straightforward. So what does creating “financial wealth” mean for an enterprise building a betterness portfolio? One that generates wealth for society instead of reallocating or diminishing it?
There are three parts to consider:
- What a financial return means
- Whom the return is for
- When you expect to see a return
What a financial return means
Money is just paper and digits. It’s a symbol that we all agreed means something. It’s a proxy of value that represents an opportunity to exchange it for something else.
Rather than the end goal itself, building financial common wealth with your business means unlocking and leveraging money so you or others can use it as a tool to create value in other areas.
That could look like reallocating wasted or poorly used funds to areas that provide more value. Becoming more efficient. Expanding access to financial resources. Or providing assets that other people can use to generate more money themselves.
Whom the return is for
To build financial wealth for the common wealth, I’m not talking about charity or hand outs. I mean inclusive business practices that are sustainable for you and provide financial opportunities to others. So while you should expect to be able to run a sustainable business and afford a comfortable lifestyle for you and your staff, you can also help grow other people’s financial wealth.
When you expect to see a return
For common wealth generation projects, the full return on investment may not appear right away. So a portfolio should include a mix of short-term wins, smaller payouts over the long-term, and longer-term opportunities to set up the infrastructure to build future wealth upon.
Some ways to create financial common wealth with your betterness portfolio
- Reducing wasted funds that aren’t going toward value creation, either within your business or in your customer’s lives or businesses.
- Improving access by reconsidering how your products are purchased, including minimum purchase volume, timing, bundling, payment plans, and alternative forms of payment.
- Hiring and/or training people who are typically looked over in the job market.
- Addressing the needs of people close to or below the poverty line with your product or service to help them move from survival to a position of growth.
- Exploring alternative hiring models to reach people outside of the typical full time job market (ex. part time, temporary, contract, remote, hourly, seasonal, or employee ownership models).
- Selling a product, service, or knowledge that can be used as an asset for your customer to generate income.
- Running a sustainable business where your income covers your expenses with a profit buffer. It doesn’t help your customers if you go bankrupt.
- Building a platform or encouraging side businesses to grow alongside yours (ex. Etsy, app marketplaces, brand fan bases).
- Investing in projects that impact your community, suppliers, or customer base to improve your company’s future revenue generation opportunities or lower future costs.
How to incorporate financial wealth generation into your portfolio process
You can fold a financial perspective into each of the portfolio essentials with a few tweaks.
Current State
When evaluating what already exists, don’t forget the financial viewpoint. Consider both your business and external stakeholders with tools like financial and value stream analysis. Who controls the money today and how is it being used?
Future State
In the future state we’re examining what could be and the potential future impact. This is a good area to focus on brainstorming options, building financial models, defining scenarios, and running simulations.
Value Framework
Probably the most straightforward, your value framework can include measurements like financial return on investment or cost reductions. You could also add in criteria to encourage projects that impact a certain set of stakeholders to rise to the top of the list.
Portfolio Allocation
Portfolio investing for building financial wealth is similar to how you manage your 401k. You want a mix of projects, with varying risk. When building common financial wealth, you will also need to consider the overall portfolio impact on common wealth vs. company wealth that you’re generating and perhaps run some scenarios to find a portfolio mix that optimizes both.
Execution Support
Pass along helpful information you gathered in the current and future state phases. Share the investment reasoning and budget parameters with the teams. Plus your value framework to help project teams make fast decisions on the ground with wealth generation in mind. You could also align your recognition and bonus programs with leading indicators of these new goals to avoid dissonance if your typical project incentives don’t match the new strategic direction.
Research & Experimentation
For wealth creation projects with an uncertain return, focus on pilots, experiments and asking for smaller commitments (like sign-ups, downloads, or pre-orders) to see if people are reacting the way you expected before going all in with a larger investment. They may love your product but are they willing to spend money on it? Did it make money for a customer?
Intake Process
Opportunities for building financial wealth can come from anywhere. Executives looking to expand the business in new areas, employees with ideas to streamline processes or create value, employees and partners who work closely with customers and see unmet needs, customers themselves, and broader trends. Allow people to submit business model ideas and support business model exploration during your portfolio process.
Dynamic Views
Building financial wealth requires tracking financial views that are relevant to stakeholders. Those views will probably be different for your finance group, your project teams, and your customers. Consider each group’s expectations, typical vocabulary, needs and interests so that the information available is clear and actionable.
Creating financial wealth is a core component of business and can also be a great tool for encouraging change in other areas. Incorporating this into how you run your enterprise portfolio will help build good habits. So that over time your enterprise creates financial value on autopilot. In the following weeks, we’ll discuss other sources of wealth to fold into your portfolio process.
How will you incorporate these ideas into your business? Do you have other ideas of how to build financial wealth for your community, customers, or employees?