The Questions Every Leader Should Ask About Strategic Value Creation

I always start with: What is the entity's purpose? Why does it exist, and how does it plan to create value? v

These are fundamental questions. Regardless of whether you're a venture capitalist, a supplier, a customer, or even an acquisition target, the questions that matter for value creation are always the same. Ultimately, it comes down to financial sustainability—will this enterprise create repeatable earnings or cash flows? That's what the market values and what drives company value.

The next step is revenue, which is arguably the most important number. Without revenue, there is nothing. So ask: Who are your customers? What problem are you solving for them? What is your solution, and why does it work?

Here, we're really talking about barriers to imitation. Everyone knows Amazon's strategy—it isn't about secrecy. It's about barriers. Very few can actually imitate what Amazon does. The real question is: What will stop someone from copying me?

You have to ask: how big is my serviceable, obtainable market? Take Tesla. Its market cap is bigger than the next seven or eight massive car companies combined. How is Tesla ever going to grow into that market cap via cash flows?

Management will always have some optimistic spin—the Hyperloop, going to Mars, energy storage. All of that is exciting. But you still need to see a business model. How exactly are we going to make money on these things? That's the discipline you want in thinking about market size.

That's critical. We're all optimistic about what we do as entrepreneurs, but you must keep an eye on who is competing with you—and often it's not obvious.

History is full of examples. Blockbuster had a chance to buy Netflix not once, but three times, and passed. IBM had Watson long before AI was mainstream, but they’ve struggled to monetize it, while Amazon and Microsoft surged ahead in cloud computing. Intel’s Andy Grove famously said, “Only the paranoid survive,” and yet Intel itself has struggled in mobile and GPUs, ceding ground to NVIDIA.

So it’s not just about today’s competitors—it’s about emerging competition, sometimes from companies you don’t even know exist yet.

 

I like to break this down into Econ 101: quantity, price, and currency. Few companies actually do this.

In a globalized world, it’s very hard to grow by raising prices—unless you’re a rare oligopoly like Google, which controls about 40% of the ad market. Currency is mostly luck; if you're making money because exchange rates went your way, you may as well be in an investment bank. It's not sustainable.

So the only real sustainable advantage usually comes from volume. Take Apple: by selling millions of devices, they built a $75 billion services business in just a few years. Volume sustains growth. It allows habit formation, add-on services, and scale.

Distribution is hugely important. Tesla, for example, bypassed the dealer network in the US, which typically adds three to four percent to car prices. That gave Tesla a real cost advantage over General Motors or Ford.

Sometimes, distribution itself is the business model. GM made a fortune financing subprime car loans. Counterintuitively, those turned out safer than subprime housing—people could lose their homes, but they couldn't afford to lose their cars because they needed them to get to work.

Ironically, when the government bailed out GM, it forced them to sell that business—probably not realizing how much value it actually created. That shows just how powerful distribution can be as a driver of value.

Because in the US, we don't really make things anymore. Much of manufacturing is outsourced. What we have are people. And yet, many companies don't manage talent well.

If you ran a hedge fund and kept selling stocks that later went up in value, you'd get fired. But companies do this all the time with people. Employees leave, get raises elsewhere, and no one stops to ask why. Are we tracking turnover? Are we investing in training? Do people come to work because they want to, or because they have to?

Too often we say “people are our biggest asset,” but it's just talk. In reality, talent management is one of the biggest blind spots in value creation.

The key distinction is between fixed and variable costs. That sounds simple, but you'd be surprised how hard it is to figure out from financial statements.

Technology is all about high fixed costs and low variable costs. Netflix spends a fortune on content, but the incremental cost of delivering a show is close to zero. The whole play is contribution margin—price minus variable cost. But you can only understand this if you really know the business model deeply.

Debt is cheap. Interest is tax-deductible. But we rarely see companies financed entirely by debt. So you have to ask: what's the right balance between debt and equity?

Then, how is incremental capital allocated? That's often overlooked but incredibly important. Should you buy back stock? Pay dividends? Invest in CapEx or R&D? And within CapEx, how much is maintenance CapEx—the bare minimum needed to just stay in place?

Think about intangibles: how much R&D is needed simply to keep market share? That's hard to see, but it matters. When Facebook bought Instagram, you could argue it was maintenance CapEx—it kept them in the game—but accounting treats it as an asset.

Discipline around capital allocation is one of the least discussed, most important drivers of value creation.

Most large firms aren't run by founders anymore; they're run by professional managers. And compensation drives behavior.

Comp plans are like exams—people optimize for the test, not necessarily for learning. Executives optimize for the comp plan, not necessarily for long-term value creation.

It's even trickier today because roughly 25% of stock in large US companies is owned by passive investors like BlackRock, Vanguard, and State Street. They're disengaged owners. So who's actually monitoring management?

That's why pay design matters. What are the right metrics? Should they be short-term, long-term, financial, non-financial? How we pay people directly shapes how they behave.

Risks are often buried in 10-Ks, and people treat them as boilerplate. But they’re worth reading. They tell you how management really thinks about vulnerabilities.

And of course, at Columbia Business School, we believe in value investing. Price doesn’t always reflect intrinsic value. So the ultimate question is: what is the intrinsic value of this business, and how does that compare with price?

What we try to do with the Strategic Value Creation: Transform Strategy Into Sustainable Advantage program is to make it very applied. We go through the seven drivers of value creation—purpose, product market, human capital, costs, tech, capital allocation, and stewardship—and stress test them with real-world cases. Participants work through examples, hear from leaders in practice, and debate with peers. It’s not about abstract slides; it’s about sharpening your ability to spot blind spots, push back on wishful thinking, and figure out where the real value in a business comes from.

If you have questions about the program or are interested in enrolling or sponsoring someone in your organization, please don’t hesitate to contact Christine Tom at christine.tom@gsb.columbia.edu.