By Hassaan Khan - The latest insights and lessons from NAFM

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Key Conversations

As I reflect on the first quarter of this year, I find myself thinking about the diverse discovery conversations I had with clients and the trainings I attended at Vaughan Business and Entrepreneurship Centre, Futurpreneur, Y Space, and YEDI. These experiences have helped shape my perspective on running a start-up business on a full-time basis. Meeting professionals from various fields, including venture studios, M&A finance, technology, and process automation, has opened my eyes to new approaches, trends, and opportunities for growth.

A few of the standout conversations were with:

Adnan Cheema, from Northland Power focused on development finance in the wind energy sector. His insights on the importance of long-term capital planning and sustainability reinforced my belief in investing in cleantech companies with a strong environmental, social, and governance (ESG) frameworks. ESG is not just a trend but a necessity for businesses to thrive in today’s competitive landscape.

Sagar Sethi, who works in M&A finance at a major bank, reminded me that financial metrics like cash flow yield are critical to understanding a company's health. Investors, especially in private equity, always seek companies with reinvestment potential at an incremental rate of return. This metric is crucial for identifying opportunities where businesses can deploy additional capital efficiently, ensuring continuous growth.

Andrew Walls, the founder of Boardroom Labs, sparked thoughts on innovation and the pivotal role of technology in scaling startups. This tied back to my learnings from conversations with experts like Sepehr Sisakht, who specializes in AI process automation. Together, they highlighted the significant role of technology trends in shaping the future of business and how staying ahead of secular trends like AI and automation gives companies a competitive edge.

Investors Perspective

One recurring theme I’ve noticed across these conversations is the importance of reinvestment opportunities at an incremental rate of return. It’s not enough for a company to generate steady profits; investors want to see how that capital can be put to work again to yield even higher returns. This is particularly true for private investors, venture capitalists, and equity holders, who are keen on identifying businesses that have scalable, repeatable business models.

From my vantage point as a business modeler, cash flow yield is my favorite metric for evaluating historical and projected business performance. Cash flow yield indicates how efficiently a company generates cash from its operations relative to its value. It’s not just a measure of profitability but of financial health, offering insights into the company’s ability to sustain growth without taking on excessive debt and incorporates items such as dividend policy and capital expenditures. For public companies, it signifies stability and resilience. For private companies, it reflects the company’s capacity to fund future projects or weather economic downturns.

Private and public investors, as well as creditors, look at different metrics depending on the stage of the company:

• Early-stage startups: Focus on revenue growth, burn rate, and customer acquisition costs. Investors want to know if the business can scale.

• Mid-stage companies: Metrics like operating income, EBITDA, and working capital management become important as companies grow and seek to optimize their internal processes.

• Mature companies: Investors focus on return on invested capital (ROIC), free cash flow, and cash flow yield. These metrics reflect the company’s ability to reinvest, sustain competitive advantage, and leverage secular trends, such as advancements in technology.

Investors typically seek companies and ideas that offer opportunities to reinvest capital at an incremental rate of return, as this reinvestment drives compounding growth. The ability to deploy capital into new projects, ventures, or innovations that exceed the company's cost of capital significantly enhances long-term value creation. Companies that can generate higher-than-average returns on reinvestment often enjoy moats or sustainable competitive advantages. These advantages might come from proprietary technology, economies of scale, or market leadership, all of which enable the company to leverage secular trends (e.g., digital transformation, AI, renewable energy) to grow faster than competitors.

Taking Advantage of Technology and Secular Trends

My conversations with Raymond Sam, an expert in marketing and conversion strategies, and Ammar al Sammarai, who leads web development projects, have highlighted how modern businesses can leverage digital tools to streamline operations. In a competitive environment where technology is evolving rapidly, it is essential to integrate AI, automation, and efficient data management systems. Whether it’s web application development or marketing automation, embracing technology is crucial for staying competitive and achieving sustainable growth.

Conclusion: A Continuous Learning Journey

My first quarter with NAFM of this year has been a journey of growth and learning. I've had the opportunity to connect with incredible people from various sectors, all of whom have contributed to broadening my perspective on business modeling, strategic business planning, and leveraging the cloud and technology such as AI to enhance the customer experience and automate certain processes.

As we move forward, I'm excited to apply these lessons and continue helping businesses create long term value. Whether it's through refining business models to optimize cash flow yield or guiding companies to reinvest capital for incremental returns, my focus remains on helping organizations build sustainable competitive advantages in an ever-changing world.

Looking forward to what the next quarter brings!

Contact NAFM:

Hassaan@nafmodelling.com

www.nafmodelling.com