Capital Deployment – Weekend Reflections for Leaders

Capital Deployment:

Over the last several weeks, we have been sharing some concepts for leaders considering making a transition from a large company to building the next chapter of their career in a smaller, early-stage venture.

Leaders who have built an effective set of skills while working for a large company are needed in the early-stage to help bring innovations forward in the market. The risk of all of us being “Amazoned” in the not-too-distant future is real. Being on the forward edge of innovation in the early-stage is one way to stay ahead of the threat of becoming extinct as marketplaces become more efficient in serving customers.

The focus for today’s topic is on the effective deployment of capital for a company in the early-stage marketplace.

The effective deployment of capital is a critical need in the early-stage. Many times, these companies are pre-revenue so the importance of thinking about capital deployment to drive activities must always focus on value creation that will support the next capital raise (to keep the company afloat). Like many of the skills and experiences we discussed in the past, large company leaders have good foundational discipline on many aspects of running a business in the early-stage, but most do not have experience in the full extent of deploying capital.

One of the clear learnings around capital deployment in the early-stage is that any deployment of capital must be clearly defined around value creation for the technology, product or service, or some aspect of risk mitigation. These capital deployments are tied to timelines, and are focused on delivering key value inflection points for the company to use in support of the next round of capital.

Effectively managing capital deployment to meet value inflections brings about some healthy tension.  For example, careful consideration is needed when spending on items like a new office or improvements to the work environment, team building trips or retreats that cost real money, and booking decent but not extravagant hotel rooms when traveling, etc. Leaders from large companies typically have budgets to do some of the important team building aspects of growing a company, but sometimes in the early-stage it becomes a more intense discussion given time and money are always in limited supply. Plus, investors want short term value inflection points as a result of their investment and are not necessarily impressed with your desire to build an office environment that will help the team feel great for years to come.

There are also the practical aspects of negotiating contracts, consultant expenditures, etc., that also play into the role of capital deployment in the early-stage marketplace. Leaders from large companies typically have procurement teams hammering out most agreements that will set tight guardrails around any leadership decisions. In leading an early-stage company, leaders have a great deal of responsibility to ensure contracts are negotiated as aggressively and as fairly as possible to ensure dollars are allocated effectively. In addition, oversight of consultant expenditures in relation to the value they are delivering is another important and often unfamiliar area for leaders making the transition from a large company to one in the early-stage.

The effective deployment of capital is a critical need in the early-stage. This is an area that has been generally underappreciated by leaders coming out of large companies and it is one that can have swift and painful consequences (like running out of money) if it is not attended to in a very thoughtful and intentional way.

Strong leadership is needed in the early-stage marketplace and leaders from large companies have the skills and experience to create great value at the forward edge of innovation. As we look to build and strengthen our leadership over a long-term career journey, the early-stage market provides a wonderful environment for leaders to learn, grow, and bring world-leading innovation to the market.

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Also, for those leaders in healthcare, the opportunity to be at the forefront of creating and scaling life-changing innovation resides in the early stage. This sector needs strong leaders like yourself to drive innovation in the years to come. I wanted to share a link to a program specifically for leaders in healthcare who are looking for insights into building the next chapter of their career in the early-stage. I was asked to contribute to this program based on my experience of leaving a large healthcare company and building my career in the early-stage. Please take a look at the link below.