The Expertise of Capital in Business: A Series

What does capital expertise look like, in the context of business?

Business expertise consists of two big things: cognitive agility, and a mental model of business that may be best described as three legs of a triad: Operations, Market, and Capital. Broadly speaking, Operations is ‘factors affecting company operations’, Market is ‘factors influencing the market the company is selling into’ and Capital is ‘factors driving business finance and economic climates’.

This series focuses specifically on the Capital side of the triad. What does the expertise of Capital in business look like? What are its forms? Who is good at it? What are some real world case studies that demonstrate the shape of this expertise in action?

Capital is interesting mostly because it is not obvious. To a novice business observer, what is important in business is running things well (Operations) and competing successfully for market share (Market). It’s not immediately obvious that Capital ties into operations and strategy, or that there are as many creative ways to access liquidity as there are ways to run operations and to run strategy. But most operators learn that there is expertise in Capital, and they usually learn this the hard way: they are outcompeted or outmanoeuvred by those who are good at it.

We start with a series of business stories, and then work our way through to explore various instantiations of the expertise in business.

List of Essays in the Series

1. Dell's Capital Expertise — You might think that the Dell Computer Corporation is the story of smart supply chain innovations and counter-positioning against its larger, better funded competitors. And it mostly is. But Michael Dell also turns out to be a savvy Capital operator, and we trace the development of his skill through two stories from his history.
2. The Skill of Capital — What is the skill of capital anyway? What does it look like? How do you recognise it? Why is it even important? We walk through three stories, and then we talk about the shape of the skill in practice.
3. Fundraising Without Investors (members only) — What the skill of capital looks like in a smaller business. Includes two personal stories of capital expertise that was foundational to my business education; this essay argues that financing creativity matters at all levels of business, not just in the large.
4. Lee Walker and the Dell Growth Plateau — A return to Dell’s early history, in order to test your understanding of capital expertise ‘in-the-small’. As it turns out, Lee Walker was critical to Dell’s eventual success in more ways than one — Walker’s dealmaking expertise was necessary to break through Dell Computer’s most challenging growth plateau.
5. The Capital Cycle — What can a famous investing framework, built around a simple financial concept, now regarded as part of the modern canon of value investing, teach us about capital expertise in business?
6. Building a Valuable Business? It’s How You Spend It That Matters — The skill of capital allocation — what it is, why it’s rare, and how it determines the bulk of shareholder returns over the long term.
7. Capital Allocation as an Antidote to Business Luck — The open secret about starting up is that it’s a crapshoot: sometimes you’re lucky as a founder, and sometimes you’re not. If you believe that the only way to a billion dollar company is by betting large and swinging for the fences, then you’re basically admitting to playing a luck-based game. Good on you if you win. But what if you lose? Capital allocation is interesting because it gives you a path to winning, even when you’ve lost your initial dice roll.
8. High Roller: Lessons from America’s Richest Banker (members only) — A guest post by Frederik Gieschen of The Alchemy of Money, this profiles Andy Beal, a remarkable banker and masterful capital allocator. It serves as an entertaining case study of the ideas from the prior three instalments in action.  
9. Strong at Capital, Bad at Everything Else (members only) — Two case studies of financial actors who are good at Capital, but bad at the other two legs of the business expertise triad.
10. Marvel Studios’s Origin Story — As it turns out, the creation of Marvel Studios was contingent on some very creative financial dealmaking. A return to the skill of raising capital.
11. Data and the Capital Cycle: How Koch Became an Empire (members only) — What happens when you use Deming’s methods for operational rigour to increase free cash flow, which you then allocate elsewhere? Well, you get Koch Industries, one of the largest and most powerful conglomerates in America.
12. A Most Unlikely Master of Capital Allocation (members only) — The inspiring story of Katharine Graham, who dreaded the trappings of business, and yet became a master capital allocator late in her life. Note: the case embedded in this essay is freely available here.

Originally published 01 July 2023, last updated 10 January 2024.