Would a VC Invest in Your Improvement Capability?

Picture: an AI visualization of the difference of a startup having a high-performance improvement system or not.

Perhaps the most overlooked asset in a company isn't its technology, its data or even its people. Investors should distinguish a company's improvement opportunities from its improvement capability, and potentially measure the latter.

Imagine that a venture capitalist (VC) could evaluate not only your market, technology, financials and management, but also your organization's ability to identify, implement and sustain improvement. Would your company pass?

VCs don't just ask questions like:

• "What is the company doing today?"

• "How much revenue does it have?"

• "How good is the technology?"

VCs buy future potential, not today's performance. Therefore, VCs ask questions like:

• "What could this company become?"

• "How scalable is it, and how quickly can it learn?"

• "Can the team execute?"

• "What prevents growth?"

• "What is the upside if the bottlenecks are removed?"

VCs assess many factors related to future execution, but improvement capability is not normally isolated, quantified and evaluated as a distinct investment characteristic. If improvement capability is genuinely a source of future performance, why isn't it routinely evaluated as an investment asset? Consider two otherwise identical companies:

Company A

• excellent market,

• strong technology,

• good people,

• reasonable margins,

• lots of identified improvement opportunities,

• weak implementation capability,

• improvement initiatives regularly stall,

Company B

Same characteristics as in Company A, but Company B:

• systematically identifies its highest-value improvement opportunities,

• knows where its bottlenecks and key pain points are,

• converts opportunities into actionable improvement plans,

• implements them rapidly,

• measures whether improvements actually work,

• learns from implementation,

• continuously increases its improvement capability.

Which company would you rather invest in? Here the question isn't about asking "How much improvement potential does this company have?" but more importantly "How much of that potential can this company actually convert into realized performance?"

For buying future potential to make sense, the potential needs to convert into value. This conversion requires execution and the ability to adapt. With VCs obsessed with scalability, the question from an improvement point of view is: "What if improvement capability itself has to scale?" Traditional improvement approaches were not designed around the explicit optimization and measurement of improvement performance itself. A startup can grow from 20 to 200 to 2,000 employees, but the improvement mechanism that worked for 20 people may collapse at 2,000. So, the issue at hand is whether the company's improvement capability scales as fast as its business. Growth creates complexity, which means that improvement becomes increasingly difficult. Adding AI to accelerate change means potentially that the number of potential improvements explodes. The ideas, or even the improvement activities, are not the bottlenecks, but the organization's ability to convert the best opportunities into implemented sustainable improvements is. VCs should keep a close eye on the improvement capability (the actual performance of the improvement system) and the realized improvement (the financial outcome).

The Process Improvement Yield (PIY) reveals how well the organization is able to solve the High-Performance Process Improvement (HPPI) Equation:

How to lower costs, increase the price or value of a company's outputs, and sell more, without constantly sacrificing the satisfaction of one or more stakeholders.

The PIY score (0-100%) tells how well the company solves the HPPI equation in practice, calculated as:

PIY = Plan Quality × Plan Coverage × Implementation Quality × Implementation Coverage

Consider Company A with a Plan Quality of 75% (37.5 points out of 50), Plan Coverage of 75% (3 key processes out of 4), Implementation Quality of 64% (128 points out of 200), and an Implementation Coverage of 50% (4 out of 8 key problems). The Improvement Effectiveness ("doing right things") is about 56% (0.75 × 0.75 × 100%), whereas the Improvement Efficiency ("doing the things right") is 32% (0.64 × 0.5 × 100%). The PIY is about 18% (0.56 × 0.32 × 100%).

Consider then Company B with a Plan Quality of 100% (50 points out of 50), Plan Coverage of 100% (4 key processes out of 4), Implementation Quality of 94% (188 points out of 200), and an Implementation Coverage of 87.5% (7 out of 8 key problems). The Improvement Effectiveness is 100% (1.0 × 1.0 × 100%) whereas the Improvement Efficiency is about 82% (0.94 × 0.875 × 100%). The PIY is 82% (1.0 × 0.82 × 100%).

A company can have an enormous improvement potential but a low PIY, meaning that only a small fraction of that potential becomes realized performance. Likewise, a company can have only a moderate potential, but most of that potential becomes realized performance. With the right improvement technology and knowledge, applied correctly, VCs and founders can continuously make the most use of the available resources.

The methods behind HPPI are designed from the outset to solve the HPPI Equation at a high PIY level, which requires that the improvement methods themselves are optimized in terms of time, quality and costs. The PIY level is measured, improved and maintained using dedicated VISTALIZER solutions. Designing a method that can continuously create high-quality process improvement plans with little time and comparably small total costs requires substantial research and development. The same applies to designing the methods and solutions needed to implement those plans effectively. The first thing to understand is what is a high-class process improvement plan, and what is a high-quality implementation, and how can these outputs be delivered swiftly. Solving the HPPI Equation using conventional improvement methods can constrain PIY to a relatively low level, even if the improvement work would have been executed "by the book". This is actually good news, as startups have an opportunity to build improvement capability deliberately before inefficient improvement practices become institutionalized. A negligence in properly improving also the improvement system and its actual outputs tends to show up down the road.

Investment professionals already care about operational value creation. HPPI asks whether the company's underlying capability to repeatedly generate and execute improvements should itself be measured. If two companies have similar markets, technology and financial prospects, but one can systematically convert more of its improvement potential into realized performance and value, that difference should matter to an investor. After all, investors don't just invest in potential. They invest in the probability of turning potential into value.

And the specific solution for VCs wanting to measure the PIY of a company? It's called the VISTALIZER Acid Test (link to product page at Vistalize.fi). Fast. Honest. Get in touch (link to contact info at Vistalize.fi).