EcosystemEconomics®
The Investment Strategy and the Foundational Precepts.
There is a material mispricing of risk and assets in all industries today. It persists because value is being measured with the wrong instrument. Ecosystem Economics® is the pair of glasses and the toolkit that corrects it — and the method by which Network Asset Value is built.
01. THE MISPRICING
Every industry is being rebuilt from its fundamentals, and almost every industry is still being priced against the architecture it is leaving. The gap between what an asset is worth inside the old structure and what it is worth inside the new one is the material mispricing of risk and assets. It is not confined to one sector and it is not a function of the cycle. It is present in all industries today.
It will not be closed by more capital. The race is not for capital. It is for the best minds who know how to go to the fundamentals of every industry. Only entrepreneurs do that work. The mispricing persists for exactly as long as the people pricing the risk are not the people rebuilding the industry.
02. NET ASSET VALUE · NETWORK ASSET VALUE
Most CEOs are still living in a world of Net Asset Value — of net assets. They run a closed system: what the firm owns, what the firm controls, what the firm can place on its own balance sheet. Everything that counts sits inside the wall.
The value has moved outside the wall. It now sits in Network Asset Value — the worth of the position a firm holds within its ecosystem, and the profitability that position creates for everyone operating inside it. A firm may hold very few assets and an unassailable position. A firm may hold a great many assets and no position at all. The first is systematically underpriced; the second is systematically overpriced.
N = 1. N². The individual is the unit of value creation; the network is the multiplier. Nothing compounds until the two are joined.
03. THE FOUNDATION PRECEPTS
We have worked with these precepts for two decades. They answer two questions: why the winners are winning, and what you can do to own a market position and drive the profitability of your ecosystem — not just your firm.
I. The mispricing is systemic, not local. Risk and assets are mispriced across every industry, because in every industry the measuring instrument was built for the previous architecture.
II. Capital is not the scarce resource. The scarce resource is the mind that goes to the fundamentals of an industry and rebuilds it. Capital follows that mind; it does not find the mispricing on its own.
III. Value has left the balance sheet. Net Asset Value counts what a firm owns. Network Asset Value counts what a firm’s position is worth to everyone who transacts through it. Only one of the two is still growing.
IV. N = 1, N². The individual is the unit of value creation. The network is the multiplier. One without the other produces neither scale nor return.
V. Own the position, not the assets. The winners are winning because they own the point through which the ecosystem must pass, and they invest in that point rather than in owning more of the value chain.
VI. Drive the profitability of your ecosystem, not just your firm. A firm that takes all of the margin has no ecosystem, and therefore no position worth holding. Advantage is paid for out of what the ecosystem earns.
VII. Trust is efficient. The architecture of a relationship is set at the beginning and is never fundamentally renegotiated. Ecosystems built on trust move faster and cost less than ecosystems built on control.
VIII. Sequence is strategy. Strategy, then Structuring, then Sourcing, then Distribution, then Marketing. Executed out of order, capital is consumed before the position is built.
04. THE TOOLKIT
The five stages are the working method of Ecosystem Economics®. They are carried out in this order.
STRATEGY Where the mispricing sits, and which position is worth owning.
STRUCTURING The entity, the capital and the terms that allow that position to be held.
SOURCING The companies, the assets and above all the people who fill it.
DISTRIBUTION The routes through which the ecosystem transacts.
MARKETING The statement of the position, made to the market it is meant for.
05. WHAT THIS MEANS FOR CAPITAL
The Summits — FTE® Capital Markets, KEANAISSANCE and La Fenice — are the sourcing function: this is where the minds who go to the fundamentals of their industries are found, and where relationships are formed correctly at the outset. ALEPH ECO² and Herrliberg are how the position, once identified, is owned.