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 / Fall 2003 / Issue 32(originally published by Booz & Company)


Making Patient Capital Pay Off

In Search of Patient Capital
In all five cycles, the key driver is conflict between two types of capital: financial capital drawn from investors, and more patient production capital, which comes increasingly from profits as upstart companies become viable and venerable.

Consider, for instance, the surge we’re in right now, which, according to Ms. Perez, began with the expanded commercial development of the semiconductor around 1971. For the first 30 years, financial capital and short-term returns dominate the system. The crisis (which just passed) always involves overreaching, bubbles bursting, and evidence of chicanery coming to light. If this cycle follows the patterns of the past four, production capital — innately more patient — will emerge in a host of places. Investors, picking up on this, will put their money into the long-term fundamentals.

One might conclude, then, that companies such as Plug Power (if they’re right about their technology) need only wait to become the leaders of the new industry they’re building. But it’s not quite so simple. Ms. Perez notes that in the synergy phase of the cycle, “short-term financial criteria, apart from the risk of stimulating dishonesty, can no longer serve to guide investment and technology decisions directed to the steady expansion of production and markets.” Trust, in other words, becomes a core component of transforming crazes into sustainable growth.

If Carlota Perez is right, then the highest-leverage move an entrepreneur/CEO like Roger Saillant can make is to build trust — not in his products so much as in himself and in the people of his company. At this moment in the cycle, any innovative company, if it really wants patient capital, can’t attract that capital through a formula. It can do it only by developing an inclusive, creative, and truthful strategy that unites the interests of employees and investors. There’s always a leap of faith when people start a business; but now we’re at a point in the cycle where all the players, especially employees and investors, have to jump together. This in turn requires a different kind of CEO; rather than an all-powerful commander, it requires someone (like Dr. Saillant) who knows how to convene employees and investors and keep them focused on a common dream.

Is it too daunting to bet all this on the turn of a cycle? Neither the employees of Plug Power, nor the CEO, nor (in the end) investors who want to win the next round have much choice.

Reprint No. 03303


Art Kleiner ([email protected]) is the “Culture & Change” columnist for strategy+business. He teaches at New York University’s Interactive Telecommunications Program. His Web site is Mr. Kleiner is the author of The Age of Heretics (Doubleday, 1996) and Who Really Matters: The Core Group Theory of Power, Privilege, and Success (Currency Doubleday, 2003).
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