Thinking Outside the Funnel

It is arguably the most important part of any new business presentation and a focal point of how consultants get to know investment companies. Why then is the investment process diagram so dull, so relentlessly the same from one firm to the next and, ultimately, so devoid of any genuine connection to what it is designed to portray? In answering these questions, this issue of Excess Returns considers different ways to bring the investment process to life.

With best wishes,

Liz Hecht
Founder, Principal and Director of Research

Print a PDF of this newsletter

In This Issue

A Radical Idea

Thinking Outside The Funnel

Getting Safely Down

Alpha Partners is an investment marketing firm specializing in research and presentation strategy. Our goal is to create alpha (excess returns) by helping investment firms win, keep and diversify assets under management.

Alpha Partners LLC
435.615.6862

www.alphainvestmentmarketing.com

A Radical Idea

I have just almost completed the first draft of a presentation book about a specific investment strategy, and I am pleased with it. But there is one looming problem still to be solved. I have not yet even started the most difficult and in many ways the most important page: the investment process map.

What will it be this time? The omnipresent funnel? Or a classic flow chart? Or perhaps a central point with lots of fat arrows around it, all flowing in and out dynamically? Happily, mine is not the challenge of designing this artifact. I do, however, need to help decide what it will be and somehow suffuse it with meaning. I also will work with the investment team on strategies for presenting the page effectively.

I have been involved in studying and creating investment process diagrams for almost 30 years now. One part of me understands how important these diagrams are, and I have very specific views on how to increase their information value. Another part of me understands that no amount of creativity applied to the diagram itself can help if investment company professionals do not fully understand its role and how to use it effectively.

Before I deliver on the title of this article, let’s consider the information that an investment process map ideally should convey.

The Investment Process: What Potential Investors Want to Know

Clients and consultants (especially consultants) want answers to the following questions:

Is the investment process repeatable? Or is it more luck than skill? Obviously, a pictorial representation of who does what when is critical if one wishes to convey consistency.

Is it truly a team effort? Or does it exist solely inside the head of one portfolio manager? Is the culture of the firm such that the portfolio manager inculcates his or her beliefs and discipline in a team who could carry on if (s)he is struck down by the proverbial bus?

Is it understandable? A clear, linear representation of a complex, nonlinear investment process facilitates understanding. This simplified representation may not fully capture what goes on day to day, but the process map itself nonetheless can serve as a bridge to conceptual clarity.

Is it systematic? By answering questions about who does what when, the process map helps potential investors see directly the discipline built into implementation. A good process diagram also can help investment firms answer questions about how they systematically learn from experience.

Is it efficient? How is the investment process structured to ensure that decision-makers have the time and resources to decide effectively, especially in a smaller organization?

How does the team leverage the resources of the firm? As discussed in the June-July 2013 issue of Excess Returns, large global investment firms need to spend less time telling everyone how large and global they are and more time showing why investors should care. The investment process discussion is an ideal place to talk about how one investment team benefits from being part of a large organization.

Do the parts come together into one greater whole? Does the process integrate complementary elements such as macroeconomic analysis with company-specific research, quantitative data with qualitative insights and tactics with strategy?

Of course the best way to answer these questions is not with a diagram but with specific examples suggested by the diagram. The process map merely fulfills a requirement. Make it great, touch on it decisively and then move into the rich realm of real-life examples showing how the process works. Because (and here is the radical idea), the less time you spend on the process map, the better. Whether your process is a funnel or a flow chart, if you spend too much time talking about it in the abstract (as so many investment company professionals do), you will succeed only in losing the interest of your audience.

Thinking Outside The Funnel

Sometimes it is an inverse triangle. Sometimes it looks like a tornado and sometimes it is presented as a sort of giant sieve. The humble funnel has many different manifestations in investment company literature. And why not? The funnel shows, with clarity and simplicity, how the process navigates from a universe of potential investments to a portfolio of actual investments.

The problem with the funnel, however, is the lack of creativity it has come to imply. As a consultant once explained to me, “Frankly, we get very tired of looking at the funnel because if everyone explains their process using the exact same three-sided figure, then you start to wonder what differentiates these firms and maybe we should index our portfolio.” So how can marketing and sales professionals tell a more interesting story about their investment process? The answer lies not in the shape of the diagram but in being more specific about what the investment team is looking for and what is different in how they go about finding it. Also, as noted in the next article, another still neglected key to a more interesting process map is the sell discipline.

Investment marketing professionals looking for alternatives to the funnel might enjoy Nancy Duarte’s book, slide:ology: The Art and Science of Creating Great Presentations. In the chapter entitled “Creating Diagrams,” Ms. Duarte provides a definitive, thorough discussion of many different types of process diagrams.

Getting Safely Down

Circa 2000 I wrote an article about why investment managers avoid discussing their sell discipline. Today, after a huge leap forward in the sophistication of investment marketing, many investment process maps still show the portfolio as their final destination with no mention of the sell discipline. Most firms also still say they sell for a standard set of reasons (valuation, portfolio rebalancing, a better idea and oh let’s not forget “deteriorating fundamentals”). And yet, as Sir Edmund Hillary once observed, “success depends on getting safely down.” So if you have the good fortune to represent a firm with a thoughtful sell discipline, then make sure you include it in the process description. And if you represent a firm without a thoughtful sell discipline, then realize that you might someday have bigger problems than the look of your investment process map!

Questions? Comments? Dissent? Click here.

Click here for other issues of Excess Returns.