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Good Strategy, Bad Strategy

· 19 min read

Introduction: Targeted Approach

Strategy is about designing and executing a combination of punches: Where is the enemy? Where should we strike, and where should we not? How do we throw our punches? How can the first punch set up the second and third? It’s not a vague mission statement or a list of aspirational goals; it’s a specific, focused plan to overcome a challenge.

The core of any strategy can be broken down into a simple but powerful formula:

Core of Strategy = Analyzing the current situation + Guiding principles + Coherent actions

combo

Let's dive into what separates a good, effective strategy from the fluff and formalism that so often passes for one.

Part One: Good Strategy, Bad Strategy

1 Good Strategy is Unexpected

A truly good strategy is often unexpected, yet upon reflection, it seems perfectly reasonable. It cuts through the noise and complexity to find a simple, powerful path forward.

Consider Steve Jobs' return to Apple in 1997. The company was on the verge of bankruptcy, with a bewildering array of products. A "bad strategy" would have been to set aggressive growth targets for every product line. Instead, Jobs did the unexpected: he drastically simplified, slashing the product line to just a few core offerings he knew could be profitable and excellent. When asked how he would compete with the dominant Wintel alliance, he didn't deliver a grand strategic plan. He simply smiled and said he would wait for the next big wave of change in the industry. His strategy was one of focus and patience.

Another example is Operation Desert Storm during the Gulf War. The media narrative focused on a slow, deliberate advance of the main forces. This was intentional. The real strategic maneuver was a flanking "left hook," where another massive force secretly penetrated deep into enemy territory from an unexpected direction, leading to a swift and decisive victory.

These examples highlight a critical lesson: doing everything and believing everything is important is the same as believing nothing is important. Good leaders and strategists must have the courage to choose not only what to do but, more importantly, what not to do.

2 Viewing Strengths with a Discoverer's Eye

The most fundamental type of strategy is the SO strategy—leveraging Strengths (S) to seize Opportunities (O). But where do these strengths come from? Often, they are not obvious and must be discovered by looking at a situation from a new perspective.

As Shakespeare wrote in Hamlet, "There is nothing either good or bad, but thinking makes it so." In strategy, strengths and weaknesses are relative and dynamic. The classic story of David and Goliath is a perfect illustration. To the conventional observer, Goliath was the strong one—an experienced, giant warrior. David was a weak newcomer. Yet, David's agility and proficiency with a sling, a ranged weapon, turned Goliath's size and close-combat specialization into a fatal weakness.

This principle applies in business as well. Walmart's victory over the once-dominant Kmart came from discovering an advantage in an unexpected place. The prevailing retail wisdom was that a large supermarket needed a population base of at least 100,000 people to be viable. Walmart defied this by opening stores in smaller towns. How? Through superior supply chain management. Walmart created an integrated network of stores, allowing for efficient distribution, lower inventory costs, and greater bargaining power. Kmart's stores were geographically scattered, making their logistics far less efficient.

During the Cold War, strategist Andy Marshall advised the U.S. to pursue a strategy of competitive advantage against the Soviet Union. Instead of matching the Soviets tank for tank, the U.S. should leverage its technological and economic strengths to develop systems that were cheap for America to build but incredibly expensive for the Soviets to counter. This included developing hyper-accurate missiles and stealthy submarines. This asymmetric strategy placed unbearable economic strain on the Soviet Union, contributing to its eventual collapse.

3 Bad Strategy

Bad strategy is more than just the absence of a good one; it's a specific kind of formalism with four common characteristics:

  1. Empty rhetoric / Fluff: It's a collection of buzzwords and grand-sounding statements that lack substance. For example, a bank claiming, "Our core strategy is to be a customer-centric intermediary," is essentially saying, "Our bank's core strategy is to be a bank." It's meaningless.

  2. Inability to confront challenges: If your strategy doesn't identify and address the primary obstacles, it's just a wish list. A plan to climb a mountain that doesn't mention the sheer cliffs, bad weather, or limited supplies isn't a strategy; it's a daydream. This is a reminder that choosing foundational metrics is crucial; if it cannot be quantified, it cannot be improved. A positive example of confronting challenges head-on is DARPA, which defines its mission by tackling specific, high-risk, high-reward technological hurdles.

  3. Mistaking goals for strategy: Goals are not strategy. A company announcing a "20/20 strategy"—meaning 20% revenue growth and a 20% profit margin—has not articulated a strategy. It has stated a goal. It says nothing about how these numbers will be achieved. Metrics are a way to measure progress, not a plan for making it.

  4. Sub-goals that are irrelevant or unrealistic: Goals are the overall aim; objectives are the sub-goals to get there. Good strategy channels limited energy and resources into one or a few pivotal sub-goals that, once achieved, create a cascade of new advantages. Bad sub-goals are often just a long list of things to do, with no prioritization, or they are completely disconnected from reality.

4 Why Are There So Many Bad Strategies?

If the hallmarks of bad strategy are so clear, why is it so pervasive? There are three primary reasons:

  1. Making choices is painful. Strategy is about focus, which means saying "no" to many appealing options. This is difficult for individuals and even more so for organizations. Consensus-seeking often leads to watered-down, meaningless compromises. When DEC was facing a strategic crisis, its leaders couldn't agree on whether to focus on "servers," "chips," or "solutions." To avoid conflict, CEO Ken Olsen chose a compromise that satisfied everyone and meant nothing: "DEC is committed to being a leader in providing high-quality data products and services." It was a death sentence. In contrast, great leaders like Eisenhower, who abandoned his campaign promise to roll back Soviet influence in Eastern Europe after realizing it was unfeasible, and Intel's Andy Grove, who made the gut-wrenching decision to exit the DRAM market to focus on microprocessors, understood that true strategy requires hard choices.

  2. People prefer to use templates without thinking. We are surrounded by books, consultants, and tutorials offering fill-in-the-blanks "strategic plans." This creates a dangerous confusion. For instance, leadership is often mistaken for strategy. Leadership inspires and motivates people, making them feel good about transformation. Strategy articulates what specific transformation is worth pursuing. Having a document titled "Strategy" does not mean you have a good one.

  3. People believe in human dominance over fate. There is a pervasive belief that a positive attitude can conquer all obstacles. New Age ideas like the "Law of Attraction" create a fantasy that simply wanting something badly enough will make it happen. This is mental opium. It distracts from the hard work of diagnosing the problem and designing a coherent set of actions to solve it. It’s far more productive to imagine the process of achieving a goal, like simulation training, than to simply visualize the successful outcome.

5 The Core of Good Strategy

At its heart, a good strategy has a simple, logical structure known as the kernel. It consists of three essential elements:

  1. Diagnosis: A clear-eyed explanation of the nature of the challenge. A good diagnosis simplifies a complex reality by identifying the crucial aspects of the situation.
  2. Guiding Principles: The overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. It's the guiding light for action.
  3. Coherent Actions: A set of coordinated steps that are consistent with the guiding principle. These actions should be reinforcing, creating a synergy where the whole is greater than the sum of its parts.

Let's look at three examples:

  • In Business Competition: The challenge often comes from external changes.

    1. Diagnosis: Analyze the structure of the competition, not just performance metrics.
    2. Guiding Principle: Choose a policy that addresses the competitive landscape and creates a new advantage.
    3. Coherent Actions: Allocate resources and design actions to execute that policy.
  • In Large Organizations: The challenge is often internal.

    1. Diagnosis: Identify internal obstacles like bureaucracy, conflicting interests, and outdated processes as the primary problem.
    2. Guiding Principle: Adopt a restructuring strategy designed to foster innovation and break down silos.
    3. Coherent Actions: Change the distribution of power and people to enable new, more effective processes.
  • Amazon's Flywheel Effect:

    1. Diagnosis: E-commerce and cloud services are industries with high fixed costs and high potential returns. The key is to relentlessly lower the cost structure to pass savings to customers, driving growth.
    2. Guiding Principle: Design a self-reinforcing "flywheel" where lower prices attract more customers, which attracts more sellers, which expands the store and distribution, which allows for greater efficiency and even lower costs.
    3. Coherent Actions: Build AWS data centers, fulfillment networks, and e-commerce services that power this flywheel, creating a nearly unassailable infrastructure.

The point about "coherent actions" is especially powerful. These actions are not just a to-do list; they are designed to help each other. As a manager, you might introduce a principle like, "I will never make you do anything that does not help your core work." This creates coherence and focus.

This kind of strategic coordination doesn't happen by accident. It must be deliberately designed and centrally imposed. While centralization can be a negative, a completely disorganized approach is also doomed because different departments have conflicting incentives. A sales team wants to please customers with urgent, custom orders, while the production department needs stable, long-term runs to be efficient. You can't do both perfectly. Smart organizations don't aim for 100% communication; they achieve the right amount of coordination to execute the strategy.

Part Two: Sources of Strength

The power of a good strategy comes from focusing limited resources on the few pivotal objectives that will generate the biggest results. It's about using your best steel on the cutting edge. So, where does this strategic power come from?

  • Leverage: Finding a pivot point where a small amount of focused effort can create a massive effect. Leverage can come from:

    1. Forecasting: Accurately anticipating buyer demand or competitor reactions.
    2. Pivot Points: Identifying a critical point that amplifies your power. When 7-Eleven entered Japan, it discovered that customer tastes were highly localized. By empowering store managers to adjust their own inventory based on local feedback, they created a massive advantage.
    3. Concentration: Many efforts have a threshold effect; investing below a certain level is the same as investing nothing. Diffusing an advertising budget thinly across the country is less effective than concentrating it in a few key regions to achieve dominance there first. As Mao Zedong practiced, concentrate superior forces to annihilate the enemy's effective strength one piece at a time.
  • Grasp: To deal with a complex problem, break it down into a set of solvable sub-problems. When President Kennedy announced the goal of landing a man on the moon, NASA broke it down into clear, achievable milestones: developing larger rockets, unmanned exploration, parallel development of fuel types, and building the lunar lander.

  • Chain Systems: In a system where performance is determined by the weakest link, the entire system must be strong. Such systems are incredibly difficult for competitors to replicate. IKEA is a prime example—its unique advantage comes from the tight integration of product design, sourcing, flat-pack logistics, and customer assembly. Strengthening a chain system is a non-linear process; the true benefit is often only realized when the final link is fortified, which requires leaders with immense patience.

  • Design: A good strategy is a well-designed solution to a problem. Hannibal's victory at the Battle of Cannae, one of the most crushing defeats in Roman history, was a masterpiece of strategic design. He intentionally weakened his center to lure the Roman legions forward, then enveloped them with his stronger flanks. In business, this means analyzing how a system works—who the key players are, how they interact, and what their needs are—and then designing an offering that perfectly meets the needs of the most critical decision-makers.

  • Focus Strategy: Instead of trying to serve everyone, provide superior service to a specific customer group. The Crown Cork & Seal Company thrived in a competitive industry by focusing exclusively on small, urgent orders for small manufacturers—a niche the big players ignored.

  • Growth: Healthy growth should be the result of a great product and a sound strategy, not the goal itself. Forcing growth through reckless acquisitions, as the aforementioned Crown company did, often leads to disaster. Its stock price crashed from 55to55 to 5. Cases like LeEco and Yahoo's acquisition spree serve as similar warnings.

  • Utilizing Advantages: Advantage is always specific to a domain. A world-class marathon runner won't necessarily excel at the high jump. A startup the author advised excelled at making innovative fabrics but failed when it tried to move into clothing manufacturing, not realizing they were two completely different industries with different skill sets and competitive dynamics.

  • Dynamics: A powerful source of advantage is a wave of exogenous change. Good strategists don't just react to change; they anticipate and ride the wave.

  • Inertia, Momentum, and Entropy: Large organizations have tremendous inertia. This can be a weakness, but it can also be harnessed. Microsoft successfully used its massive B2B inertia in Office suites to transition into a B2B cloud giant with Azure. At the same time, closed systems decay due to entropy, which may be why American companies are so keen on bringing in external managers—to introduce new energy and perspectives.

Among these, riding a wave of external change is particularly powerful. There are generally two ways to gain a strategic high ground that is easy to defend:

  1. Independent innovation.
  2. Riding the wave of change.

It's easy to be an armchair general in hindsight. To make predictions before the fact requires a deep understanding of the present, allowing you to deduce the second and third-order effects of a change. For example, when television emerged in the 1950s, everyone saw that the film industry would suffer. But few predicted the next step: the rise of independent films. With the old studio system dying, independent producers were free to focus on making truly great films, because only a great film could draw audiences away from their TVs and into theaters.

Here are some signposts that may point to a new competitive high ground:

  1. Fixed costs soar: High capital investment creates barriers to entry. The massive cost of blockbuster films gives rise to major studios; the development cost of large software systems gives rise to large software companies.
  2. Deregulation: When rules change, new opportunities emerge. China's reform and opening-up is a prime example.
  3. Prediction bias: Most people are bad at seeing beyond the immediate trend.
  • The illusion of growth: Growth never lasts forever. The faster sales grow, the faster a market can become saturated. A person who buys a TV is unlikely to buy a second one right away.
  • The illusion of winner-takes-all: While network effects are real, large companies are often plagued by internal problems, and new waves of change can disrupt even the most entrenched incumbents.
  • The illusion of winners always winning: History is littered with dominant companies that failed to adapt. Just ask Yahoo.
  1. The incumbent effect: Established players are often unwilling to cannibalize their short-term profits to embrace a new, disruptive model, as described in the Innovator's Dilemma.
  2. Attractor state: This is the state the market should reach in equilibrium. It’s an incredibly powerful concept for thinking about the future.

The attractor state is different from a company's vision. A vision is internal; an attractor state is an objective analysis of where the entire industry is heading. It is shaped by two forces:

  • Accelerants: These are events that prove a new model is viable and trigger rapid change. Napster showed the world that digital music could be easily shared. Bitcoin showed that virtual currencies could create immense wealth. Mao Zedong's idea that a single spark can start a prairie fire is an example: concentrating forces to win a decisive battle could demonstrate the regime's weakness and ignite a wider revolution.

  • Impediments: These are forces that slow down the transition to the attractor state. The public's fear of nuclear power, for example, is a major impediment to its adoption, even if it is a technically viable energy source.

Let's apply this to the newspaper industry. Take The New York Times. Its printing and distribution costs were two to three times its subscription revenue, with the difference covered by advertising. After 2009, two waves hit: new digital media eroded readership, and Google and others siphoned away advertising dollars. News media can differentiate on three dimensions: space (local vs. global), frequency (breaking vs. weekly), and depth. The market's attractor state likely leans toward specialization in these niches, not broad coverage. To adapt, The New York Times should leverage its powerful brand to aggregate information from many sources, rather than relying solely on its expensive staff of journalists, and focus on the deep-analysis niche where it has a true advantage. The more specialized the reader base, the more valuable it is to advertisers.

Part Three: Thinking Like a Strategist

So, how do you develop the mind of a strategist? The short answer is to cultivate an "external perspective"—to constantly think about why you think the way you do.

16 What Kind of Discipline is Strategy?

Strategy is not a deductive science like engineering. The author recalls meeting with Hughes engineers who disliked strategy because their thinking was deductive. They planned with certainty; they wouldn't design a bridge that might hold the required weight.

Deductive reasoning only works in a closed system where you have all the information. When facing the unknown and the competition, it fails. Worse, deductive reasoning can stifle innovation. The trial of Galileo, who used empirical observation to challenge deductive dogma, helped spark the Enlightenment, which showed us how to deal with uncertainty through scientific empiricism.

Good strategy is not deduced; it's an inductive process. It's a hypothesis about what will work, which is then tested in the real world. You observe, form a hypothesis, collect data, validate or reject the hypothesis, and repeat. When Howard Schultz founded Starbucks, his hypothesis was that Americans would pay a premium for an Italian-style café experience. He didn't bet the farm at once. He started with a small café, tested and optimized the model, and only then scaled up to full vertical integration.

17 Focus on the Process of Thinking

Steel magnate Andrew Carnegie once asked the father of scientific management, Frederick Taylor, for his single best piece of management advice, offering him $10,000 (a fortune in 1890). Taylor's advice was simple: "List the ten most important things you have to do, then start with the first one and stick to it until it's done." A week later, Taylor received his check.

The power of this exercise isn't in the final list. It's in the process of creating the list. We cannot always control our thoughts, but we can control the process by which they arise. The core solution is to think about your thinking.

Here are some tools to help:

  • Develop good habits:

    1. Use frameworks and processes to fight shortsightedness.
    2. Rigorously question your own judgments.
    3. Write down your judgments so you can review them later and see how they held up.
  • Tools and Processes:

    • The Strategic Kernel: Always return to the Diagnosis, Guiding Principle, and Coherent Actions.
    • Create-Destroy: Don't just argue against a straw man. Set up a virtual expert committee in your head, with each member arguing for a different, credible alternative.
    • Corner Solutions: Good strategies are often "corner solutions." They don't try to please everyone with a bland compromise. They focus intensely on solving a specific problem for a specific group.
  • Contact Review:

    • Before meetings or major decisions, predict how people will behave. Rehearse the situation. This forces you to recognize your own biases, understand others' motivations, and get a clearer picture of the market.
    • Through this practice, you can cultivate your own informed viewpoint and gain the confidence to disagree with the consensus when necessary.

18 Maintain Your Views

The final challenge is to have strong opinions without being stubbornly narrow-minded. The solution, once again, is to constantly seek an external perspective.

Global Crossing was a company that made decisions based on its own rising stock price and subjective desires. This created a dangerous, closed feedback loop between the market's perception and the company's actions, leading to a spectacular collapse. As Gödel's incompleteness theorem suggests, any sufficiently complex logical system has propositions that cannot be proven true or false from within the system itself. To judge right from wrong, you need knowledge from the outside.

The 2008 financial crisis was a product of this same internal perspective, combined with herd behavior. Everyone inside the system believed housing prices could only go up, and anyone who disagreed was ignored. A true strategist cultivates an independent viewpoint based on external facts and principles, allowing them to see what the herd misses.

The Investment Memo: From Gut Feel to Data-Driven Framework

· 12 min read

Investment Memo = The written, logical framework for a "go" or "no-go" decision. It forces you to deconstruct intuition into data and hypotheses, ensuring your team is fully aligned before the wire hits. This article delivers a trifecta of Concept → Template → Playbook to help you turn your memos into decision accelerators, not bureaucratic hurdles.

1. Why the Memo is an Indispensable Decision-Making Tool

The investment memo is a structured decision-making framework. It translates a vague "gut feeling" into a clear, logical rationale, forcing you to articulate precisely "why we should invest" and "why this company will win" before committing capital. Its core value lies in:

  • Combating Emotion and Cutting Through the Noise. The memo forces you to deconstruct a "good feeling" about a deal into quantifiable metrics like CAC/LTV (Customer Acquisition Cost/Lifetime Value), IRR (Internal Rate of Return), and rigorous hypotheses. This process effectively filters out market hype and emotional biases (like FOMO), grounding the decision in business fundamentals.
  • Creating a Unified Language to Boost Efficiency. The memo serves as the "Single Source of Truth" for the entire team, from associates to partners and even LPs. By ensuring everyone operates from the same structured document, it drastically reduces repetitive questions and informational gaps, leading to a step-function increase in the speed and quality of decision-making.
  • Compounding Knowledge and Enabling Continuous Improvement. Each memo codifies a moment of analytical rigor. It's not just an internal decision tool; it's an external signal of your firm's professionalism. Critically, these memos build a compounding knowledge base. This allows the team to conduct post-mortems against initial theses, continuously iterate its investment playbook, and onboard new team members by showing them exactly how the firm makes decisions.

2. The Template at a Glance

A great template is the foundation of efficient output. Here is a battle-tested memo structure designed to cover all the core elements required for a decision.

SectionKey Focus
One-Pager SummaryFinal Recommendation / Proposed Investment / Core Thesis / Highlights / Red Flags & Mitigations / Overall Score
Company OverviewCore problem being solved, product/service, business model (how it makes money), market size (TAM/SAM/SOM).
Traction & MetricsRevenue/GMV/user growth charts, unit economics (CAC/LTV), retention and engagement, core growth engine & channels.
Growth Hurdles & Use of FundsCurrent primary bottlenecks (tech/market/talent), detailed breakdown of this round's funding and expected milestones.
Competitive LandscapeList of key competitors, feature/positioning/data comparison, this company's core differentiation and moat (its winning strategy).
The TeamBackground of founders and key members, past successes and failures, team complementarity, org structure, and cultural health.
Risks & RebuttalsList every conceivable internal and external risk (market, tech, execution, regulatory) and provide a rebuttal or mitigation plan for each.
Exit AnalysisBased on comparable company analysis (comps) and historical transactions, forecast potential exit paths (IPO/M&A), valuation multiples, IRR, and MoM.
Internal WorkflowLog key deal milestones: screening date, Thesis Alignment Score (TAL), due diligence checklist, sensitivity analysis results, IC date, and final decision.

See our "Investment Memo Template (Upgraded)" at the end of this article for the full Markdown template.

3. A 5-Step Playbook

You have the template. How do you fill it out efficiently? These five steps will make your process exponentially more effective.

  1. Start with the Summary, Then Fill in the Blanks: Try to draft the One-Pager summary early in your research process. This "write-it-backwards" approach forces you to confront the most critical questions head-on: What are the top three reasons this deal is compelling? If I had one sentence to convince a partner, what would it be? This helps you immediately identify the make-or-break arguments and avoid getting bogged down in minor details.

  2. Always Ask 'Why' Behind the Metrics: Numbers don't tell the whole story. A 30% month-over-month growth rate is impressive, but what's driving it? Is it organic product-led growth or expensive performance marketing? An LTV/CAC ratio of 5x looks healthy, but what's the payback period? What behaviors are driving repeat purchases? Always dig for the "why" behind the numbers; that's where true insight lies.

  3. Be Brutally Honest in the Risk Section: Don't shy away from risks. On the contrary, you should adopt the mindset of the harshest critic. Proactively list every possible "black swan" or "gray rhino" event and think through the countermeasures. A risk that you bring up in a partner meeting is far safer than one a partner blindsides you with. This not only demonstrates your diligence but also builds a more solid foundation for the decision.

  4. Build at Least 3 Valuation Scenarios: The future is unpredictable, and a single exit forecast is almost always overly optimistic. Create a financial model that includes a Base Case, a Pessimistic Case, and an Optimistic Case. Use sensitivity analysis to test how your returns fluctuate when key assumptions (like growth rate or profit margin) change. This gives you a much clearer view of your margin of safety.

  5. Use Version Control + Conduct Post-Mortems: A memo is a living document. It will evolve from initial screening through due diligence to the final investment committee meeting. Save archives of each major version (e.g., v0.1, v1.0, v1.1). Six months or a year after the investment, pull out the original memo and compare your initial assumptions with the company's actual progress. This is the single most effective way to identify your own cognitive biases and sharpen your judgment.

4. Common Pitfalls

Both newcomers and veterans can fall into certain traps when writing memos. Avoiding them will elevate the quality of your work.

  • Listing Features, Not Differentiation → The Fix: Don't let your memo read like a product manual. The focus must shift from "what we can do" to "why we will win." Clearly articulate why, among a sea of solutions, this company is positioned to come out on top due to its unique technology, brand, go-to-market strategy, or team.

  • Describing Use of Funds as Broad Expense Categories → The Fix: A statement like "30% for marketing, 50% for R&D" is useless. You must tie the use of funds directly to the growth flywheel, explaining how each dollar of capital is expected to drive key metrics and what the anticipated ROI is. For example: "Invest $1M in content marketing with the goal of reducing CAC from $50 to $35 within 6 months."

  • "Pitch Deck" Level of Optimism → The Fix: An investment decision requires a balance of optimism and prudence. Beyond showcasing the company's highlights, you must include a pressure test for downside scenarios. For example: What happens if a key regulation suddenly changes? If the fundraising window for the industry slams shut, what is the company's cash runway?

  • Neglecting the Exit Strategy → The Fix: The endgame of any investment is the exit. From the earliest stages of the memo, you should define an acceptable IRR range and find real, comparable public companies or M&A transactions to support your valuation and exit assumptions. An investment without an exit hypothesis is like sailing without a destination—you might just end up with a paper unicorn.

5. Integrate the Template into Your Team's Workflow

A tool's value comes from its use. To make the investment memo a true decision accelerator, it must be seamlessly integrated into your team's daily workflow.

  1. During Deal Flow: The moment a promising company is identified, a skeleton memo should be created for it in your team's system that same day. Even if it's just a few lines—the source of the deal, a one-line description—get it on paper. As your research deepens, continuously "feed" new information, data, and thoughts into the document.

  2. 24 Hours Before Partner Meetings: Institute a rule that for any deal being presented, a complete draft memo (Memo v1.0) with key sensitivity analysis must be submitted at least 24 hours before the meeting. This ensures that attending partners have sufficient time to read and come prepared with thoughtful questions, leading to higher-quality, more efficient decisions.

  3. 100 Days Post-Investment: The investment isn't the end; it's the beginning. At the 100-day mark, the portfolio management team should sit down with the deal lead to review the original investment memo, checking each core hypothesis against actual progress. This not only helps identify post-investment risks early but also provides a crucial feedback loop for iterating on the firm's investment scorecard and analytical models.

6. Conclusion

The investment memo is the critical bridge that takes you from intuitive, "gut feel" investing to a disciplined, "framework-driven" approach. Mastering it will not only help you make smarter bets on individual deals but, more importantly, it will generate compounding returns for you and your firm across three fronts: Knowledge Compounding → Decision Velocity → Professional Brand.

The next time an exciting company crosses your desk, don't rush to a conclusion. Open your memo template and follow this simple three-step process: Draft the summary → Back it with data → Stress-test the risks. Your future IRR will thank your present, disciplined self.

Have suggestions for improving the template or lessons learned from your own experience? Share them in the comments.

Appendix

---
slug: investment-memo-template-v2
title: "Investment Memo Template (Upgraded)"
date: 2025-07-18
tags: [VC, Template, Decision Making, Memo]
description: An investment memo template designed to drive decisions, quantify risk, and compound knowledge.
---

### [Company Name] Investment Memo | [YYYY-MM-DD]

---

### **Part 1: The One-Pager**

> **Goal**: Allow a decision-maker to grasp the core essentials in 60 seconds.

| Key Info | Details |
| :---------------- | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| **The One-Liner** | `[Company Name]` is solving `[Core Pain Point]` for `[Target Customer]` with its `[Technology/Product]`. |
| **The Round** | **Stage**: `[Seed/Series A]` \| **Size**: `[$XX M]` \| **Pre-Money**: `[$XX M]` |
| **The Thesis** | **Decision**: `[Invest / Pass]` **Amount**: `[$X M]` <br> **Core Rationale**: Because the key evidence in `[Market/Team/Product]` is `[Argument Z]`. |
| **Highlights** | 1. **Traction**: `[e.g., MRR has grown 40% MoM for 6 consecutive months]` <br> 2. **Team**: `[e.g., Founder had a previous successful exit]` <br> 3. **Moat**: `[e.g., Has established network effects at X scale]` |
| **Red Flags** | 1. **Market**: `[e.g., Risk of entry from a major incumbent]` <br> 2. **Execution**: `[e.g., Customer Acquisition Cost (CAC) remains stubbornly high]` |

---

### **Part 2: The Core Thesis**

> **Goal**: Deconstruct the company's fundamentals, supporting your arguments with data and logic.

#### **1. Problem & Solution**

- **The Pain Point**: How acute is this problem? What are the current "duct-tape" solutions customers use?
- **The Solution**: How does your solution fundamentally change the game? How compelling is the `product demo`?
- **Market Size (TAM/SAM/SOM)**: How big is this opportunity, really? Show your work.

#### **2. Traction & Unit Economics**

- **The Growth Chart**: Display a chart of core metrics (`MRR`/`GMV`/`DAU`) and explain the drivers behind the growth.
- **Unit Economics Model**:
- **Customer Acquisition Cost (CAC)**: `[$ Amount]`
- **Lifetime Value (LTV)**: `[$ Amount]`
- **LTV / CAC Ratio**: `[Ratio]`
- **Capital Efficiency**: `[e.g., Burn Multiple]`
- **Retention & Engagement**: What does the user retention curve look like? How does it compare to industry benchmarks?

#### **3. Competitive Landscape**

- **Competitor Map**: Who are the main competitors (direct and indirect)?
- **Why You Win**: What is your defensible advantage? Is it `Technology`, `Brand`, `Go-to-Market`, or `Network Effects`?

#### **4. The Team**

- **Founder-Market Fit**: Why is this the best team to solve this problem? (Consider past experience, industry knowledge, team complementarity).
- **Organizational Health**: How is the team's decision-making velocity and execution capability?

---

### **Part 3: Risk & Return**

> **Goal**: Quantify the potential upside and downside to make a rational risk assessment.

#### **1. Key Risks & Mitigations**

> This is one of the most valuable parts of the memo. Expose risks proactively and show you've thought them through.

| Risk Category | Specifics | Counterargument / Mitigation Plan |
| :------------------ | :------------------------------------------------------ | :--------------------------------------------------------------------- |
| **Market Risk** | `[e.g., Market education costs are prohibitively high]` | `[e.g., Early traction with key KOLs has already validated PMF]` |
| **Tech Risk** | `[e.g., Core algorithm relies on a third-party API]` | `[e.g., Roadmap includes an in-house replacement]` |
| **Execution Risk** | `[e.g., Scaling the sales team too quickly]` | `[e.g., This round will fund hiring of an experienced VP of Sales]` |
| **Regulatory Risk** | `[e.g., Tightening data privacy regulations]` | `[e.g., Product was designed from the ground up to be GDPR compliant]` |

#### **2. Use of Funds & ROI**

- **Capital Allocation**: How will the `[$XX M]` from this round be allocated across `Product`, `Marketing`, and `Hiring`?
- **Expected ROI**: How will each investment drive key metrics? (e.g., Invest \$500k in marketing to achieve a 20% reduction in CAC).

#### **3. Exit & Return Analysis**

- **Exit Scenarios**:
- **Optimistic**: `[IPO or acquisition by Company X, est. valuation \$X B]`
- **Base**: `[Acquisition by Company Y, est. valuation \$X00 M]`
- **Pessimistic**: `[Asset sale or wind-down]`
- **Return Profile**:
- **Target `IRR`**: `[Percentage]`
- **Target `MoM` (Multiple on Money)**: `[Multiple]`
- **Comparable Exits**: `[List 1-2 relevant public comps or M&A deals]`

---

### **Part 4: Internal Workflow & Scorecard**

> **Goal**: Document the internal decision process and provide a basis for future review.

#### **Internal Scorecard**

| Dimension | Score (1-10) | Notes |
| :--------------------- | :-------------- | :--------------------------------------------------------------------- |
| **Market & Timing** | | `Is the market big enough? Why now?` |
| **Product & Moat** | | `How unique and defensible is the solution?` |
| **Team & Execution** | | `Does the founder have an endgame mindset and rapid learning ability?` |
| **Traction & Metrics** | | `Is the growth healthy and sustainable?` |
| **Return Potential** | | `Is the exit path clear? Is the potential return compelling?` |
| **OVERALL SCORE** | **`[XX]`** / 50 | |

#### **Decision-Making Log**

- [ ] **Initial Screen**: `[YYYY-MM-DD]`
- [ ] **Partner Meeting**: `[YYYY-MM-DD]`
- [ ] **Due Diligence (DD)**: `[In Progress / Completed]`
- [ ] **Investment Committee (IC)**: `[TBD / YYYY-MM-DD]`
- **Final Decision**: `[Go / No-Go]`

Unifying Neural and Symbolic Decision Making

· 2 min read

Key Challenges with LLMs

  • Difficulty with tasks requiring complex planning (e.g., travel itineraries, meeting schedules).
  • Performance declines with increasing task complexity (e.g., more cities, people, or constraints).

Three Proposed Solutions

  1. Scaling Law
    • Increase data, compute, and model size.
    • Limitation: High costs and diminishing returns for reasoning/planning tasks.
  2. Hybrid Systems
    • Combine deep learning models with symbolic solvers. Symbolic reasoning refers to the process of solving problems and making decisions using explicit symbols, rules, and logic. It is a method where reasoning is based on clearly defined relationships and representations, often following formal logic or mathematical principles.
    • Approaches:
      • End-to-End Integration: Unified deep model and symbolic system.
      • Data Augmentation: Neural models provide structured data for solvers.
      • Tool Use: LLMs act as interfaces for external solvers.
    • Notable Examples:
      • MILP Solvers: For travel planning with constraints.
      • Searchformer: Transformers trained to emulate A* search.
      • DualFormer: Switches dynamically between fast (heuristic) and slow (deliberative) reasoning.
      • SurCo: Combines combinatorial optimization with latent space representations.
  3. Emerging Symbolic Structures
    • Exploration of symbolic reasoning emerging in neural networks.
    • Findings:
      • Neural networks exhibit Fourier-like patterns in arithmetic tasks.
      • Gradient descent produces solutions aligned with algebraic constructs.
      • Emergent ring homomorphisms and symbolic efficiency in complex tasks.

Research Implications

  • Neural networks naturally learn symbolic abstractions, offering potential for improved reasoning.
  • Hybrid systems might represent the optimal balance between adaptability (neural) and precision (symbolic).
  • Advanced algebraic techniques could eventually replace gradient descent.

Overall Takeaway

The future of decision-making AI lies in leveraging both neural adaptability and symbolic rigor. Hybrid approaches appear most promising for solving tasks requiring both perception and structured reasoning.

Amazon's 2016 Letter to Shareholders: The 4 Foundations for Sustaining Growth in Large Companies

· 5 min read

Only Live "Day 1" = Without Growth, There is Death

The office building where Amazon CEO Jeff Bezos works is called "Day 1." Over the years, no matter which other building he moves to, he always brings this same name with him. Therefore, he has a lot of authority on this term.

Someone might ask, what is "Day 2"? Day 2 is stagnation, followed by irrelevance, then suffocating, painful decline, and finally, death.

This is why Bezos believes that every day should be Day 1; without growth, there is death. So how do we prevent "Day 2"? There are four foundations.

A True Obsession with Customers

There are countless business strategies, but why focus on "obsession with customers"? The benefits are numerous, with the biggest being: Customers are always dissatisfied, even when they say they are satisfied. Customers often don’t know what they truly want: they actually want something better. If you want to serve customers well, you must create products and services in their name. For example, the Prime service was not something customers asked Amazon for, but the results proved it was indeed what they wanted.

Maintaining "Day 1" requires patience; you need a lot of experimentation and to accept failure. Planting seeds and growing saplings takes time, but once you see what makes users happy, double down on it.

Resisting Proxies

As companies grow larger, we often tend to rely on proxies or intermediaries. This form of dependency can take many shapes and is very much "Day 2." Here are two examples:

  1. Relying on processes as proxies for results. Good processes serve you, allowing you to better serve customers. You must never serve the process. Why? When you serve the process, you only focus on doing the process correctly, regardless of the outcome. When failures occur, only inexperienced leaders say, "We followed the process," while seasoned leaders say, "We found an opportunity to improve the process." Constantly ask yourself, does the process own us, or do we own the process?

  2. Relying on market research and customer surveys as proxies for customers. When you invent and design products, relying on research can be dangerous; "satisfaction increased from 47% to 55%" is a vague statement that can be misleading.

    1. Good investors and designers deeply understand customers; they invest significant energy in developing intuition and study numerous fascinating anecdotes rather than average data from surveys. They exist to design.
    2. Bezos does not oppose public testing and surveys; they help you identify blind spots, but as a provider of products and services, you must prioritize your vision and unique value over customer feedback. Exceptional customer experiences begin with intuition, curiosity, playfulness, courage, and taste—qualities that user surveys cannot provide.

The trends of the world favor those who align with them and doom those who resist. These trends are not hard to identify, but strangely, large companies often struggle to embrace them. One such trend today is machine learning and artificial intelligence.

Over the past few decades, many tasks could be solved with precise rules and algorithms; next, with machine learning, we can tackle tasks that cannot be described by exact rules.

Much of what happens in machine learning occurs at the foundational level, out of sight, but you can at least call them very simply via APIs.

Fast Decision-Making

"Day 2" companies make high-quality decisions, but their decision-making speed is very slow. To maintain the energy and vitality of "Day 1," you must make "high-quality and high-speed" decisions. This is important not only because "speed" matters in the business world but also because having an atmosphere of "fast decision-making" is more enjoyable.

How can you achieve fast decision-making? Bezos does not have a complete answer, but here are some thoughts:

  1. Decisions are inherently unequal; never treat them all the same. Reversible decisions should use lightweight decision-making processes.

  2. Most decisions can be made when you have 70% of the information. Waiting until you have 90% may be too late. Also, in either case, you must quickly identify and address bad decisions. When you are highly responsive, making mistakes is cheap, while being slow is costly.

  3. Use a management style of "==I disagree, but I commit to executing well==." This saves a lot of time spent on disputes.

    1. When no one knows the outcome, ask, "I know we have a disagreement, but are you willing to take a gamble with me? I disagree, but I commit to executing well?" The answer you get is likely to be, "Sure."
    2. The party that disagrees does not commit out of indifference but from a genuine and sincere disagreement, allowing the other party to reconsider your "disagreement" while still acting quickly due to your commitment.
  4. Identify misalignments early and escalate them immediately. Sometimes, goals between teams conflict, and disputes at the same level cannot be resolved, wasting a lot of time and energy. In such cases, escalating will make decision-making faster and easier.