In your opinion, what is the most important job of a CEO?
What sets good CEOs apart from great CEOs?
I believe it is the job of CAPITAL ALLOCATION.
CEOs should master the art and the science of capital allocation. Good CEOs are not those who necessarily come up with good strategies, but those turn good strategies into great action.
You do that by understanding how to allocate your company’s capital smartly.
If you have Rs. 100 of capital, how are you going to deploy that capital into resources? The goal is that those resources would in turn work towards increasing your returns on the capital. In the end, your Rs. 100 should become Rs. 400. How you make that happen is by allocating capital smartly.
For example, you would look in the marketplace, and try and find the BEST talent to do the work for you. No matter how carefully crafted your strategy is, you need smart, capable people to put that into action.
The job of a good CEO is to find those amazing resources (example: talent) and deploy them.
Think about this: every single CEO at the top of the business world, Jeff Bezos, Mark Zuckerurg, Ratan Tata, Mukesh Ambani, Steve Jobs - what is common between them?
They are all great allocators of capital.
To this extent, you can think of a CEO as EXACTLY like an investor. Investors look for stocks that are undervalued (because the market does not appreciate the value of that stock), and that’s where they put their money to work. They are good at value investing.
That’s what a CEO should do too: VALUE INVESTING.
So, how do you become good capital allocators? I will leave with you with 3 quick and basic tips to start with:
(1) Delegate UP: As much as you can, try and find talent that is SMARTER than you, BETTER than you, MORE skilled than you for the job you are hiring them for. Hire experts. Its their job to make things easy for you, not the other way round.
(2) Work ON the business, not IN the business: Think of yourself as a chess grandmaster who is putting all pieces to work. You are not on the board, you are outside the board. Its the pieces you are moving that are on the board.
If you are working ‘in the business’, then you are no different than an employee. What’s worse is that you are your own employee, and your own boss. That’s the worst combination you can have.
(3) Embrace RISK: Once you have a good understanding of the underlying risks, don’t be afraid to take risks. Don’t be afraid to spend. You need to spend money to make money. You need to take risks to scale. Be smart about it, and be brave about it.