Interpreting the importance of corporate narratives and how to leverage various resources as a lever?

Author: Kowkchain

Source: Rhythm Research Institute

Fundraising for projects is becoming increasingly easier, that's right, because there is more money in the market.

However, how much can you raise your valuation? The differences between various projects are vast.

The price-to-earnings ratio is the most common relative valuation method in traditional finance, and people use this metric to compare different projects. Tesla, as a representative of tech companies, has a price-to-earnings ratio as high as 315 times, while top investment bank Goldman Sachs only has a ratio of 6 times. In contrast, when it comes to earnings per share, Goldman Sachs is 20 times that of Tesla.

Is Tesla a bubble? You could say it is, or you could say it isn't. How is Goldman Sachs able to make so much money, and where does it differ from Tesla?

A key point is the narrative.

The narrative is vision, expectation, and a commitment to the future. Some might say, who can't paint a picture? Who can't brag? Who can't fool people? The answer is that most people can only amplify what already exists, rather than think about the world from another dimension. When a founder can craft a compelling story that resonates with investors, they have already succeeded halfway; the remaining half is whether they can expand that story, make it grand, and let the world see it. Even if you can't realize your narrative, don't be afraid; you have provided the world with a brand new perspective, and that is not a bad thing.

This article comes from the independent content blog Kowkchain, discussing the importance of narrative and how it serves as a lever to mobilize various resources to create the next world-changing enterprise. Rhythm BlockBeats has translated the full text:

The Changing Landscape of Tech Company IPOs

If the IPO process is like an icebreaker dance for college freshmen, then top investment banks are akin to a professional training institution. They help companies polish their image, teach them how to account according to US GAAP, and take them to meet potential investors, ultimately leading to an IPO and a public debut.

For decades, investment banks have played this role, but in recent years, this situation has slowly begun to change. While the role of investment banks has not changed in most industries, their importance and function in the tech sector have significantly diminished.

Looking back at history, fundraising has always been quite difficult. Public market investors have not fully understood the companies seeking to go public, and investment institutions have not paid much attention to tech companies. This is especially true for startups, as retail investors are often unfamiliar with them or have had no contact at all. In this context, whether a company is unique enough is no longer important; on the contrary, investors have formed relatively standardized expectations about what returns their investments will yield, and whether a company can meet those expectations is what truly matters. Thus, a company may have great potential, but they may not know how to present themselves to public market investors, which is a challenge they face in fundraising.

The power of people correlates with the added value of their transactions; this is true in every market. Although investment banks believe they can ensure that listed companies are of high quality and that mistakes won't occur during the listing process, this view is somewhat outdated now. In the past, banks acted as gatekeepers when information was relatively closed off, and investors needed to know which companies were good; however, today, the channels for obtaining information have increased, and companies are becoming more well-known, thus significantly reducing the role of the "gatekeeper." Moreover, more and more investment banks are only responsible for the logistical aspects of the IPO process, which has also diminished their influence in setting IPO terms.

The best entrepreneurs have realized that a compelling narrative can yield exponential results. Increasingly, entrepreneurs and companies can tell their stories directly to investors, and those stories can spread among more investors. As investors learn about a company's development, plans, and values, the role of roadshows is becoming less significant. The reasons that allow companies to go public through reverse mergers or direct listings and attract investor attention are not solely based on their cost structures; more importantly, they directly convey the company's philosophy to investors.

Thus, companies can establish a more direct connection with public market investors in an unprecedentedly convenient way. Many tech equity investment funds now invest in both public markets and private IPO pre-investments (even at earlier stages). Investment institutions like Tiger, Coatue, Durable, and D1, as well as T Rowe Price and Fidelity, no longer need to be introduced to companies by investment banks. They have tracked the development of companies for years and have gained a more direct understanding of the entrepreneurs and their companies. Entrepreneurs now have the ability to connect directly with investors, who will become the backbone during their IPO phase. Furthermore, if investment banks are added to the mix, it may actually increase friction, leading to less than ideal outcomes.

Most tech startups are already well-known by the time they go public, and this is especially true for consumer startups. For instance, Airbnb, Roblox, Robinhood, and Coinbase were widely recognized and used before their IPOs. When your product is frequently used by investors (or their families) and often reported in the media, there is no need to expand your visibility through roadshows. Having users engage with your product daily is a better marketing strategy than any roadshow. More and more non-consumer companies are also becoming well-known. Nowadays, when companies go public, they have much stronger traction than those that went public decades ago. Investors used to only care about the technology itself, but as companies can now go public with valuations of $50 billion instead of $5 billion, the companies themselves become more important and better known.

Another characteristic of the current market environment is that the range of multiples that companies can achieve in the public market is very broad, with lower ones around 2 times and higher ones reaching as much as 2000 times. This is true for both small companies going public through reverse mergers and large companies conducting IPOs, and the significant differences arise from how compelling the stories they tell public market investors are.

When the multiples are only a few times, we say it is just an ordinary IPO; when the multiples reach 2000 times, we say it is an astonishing IPO. Such significant differences also reflect people's confidence in the future development potential of the companies. This is a result derived from outcomes, which may be based on traction, the entrepreneur's capabilities, how they think about the current development of the company, and their plans for how the company will develop as expected in the future and continue to create more value.

Today, capital is easily accessible, and for entrepreneurs, obtaining investment requires introducing themselves to public market investors, presenting the company's development plans and values, and ensuring that people have a correct understanding of their company.

Narrative Has Driven Risk Fundraising

Does this description of the public market sound familiar? In fact, it is indeed so.

The current direction of the public market is not surprising, as this is precisely what the venture capital ecosystem has been doing since its early stages.

In the past decade of startup fundraising, the scale of financing has grown larger, and more importantly, the classification of companies has become increasingly detailed. Some companies with similar revenue levels have valuations that are not even in the same league. Some companies can raise funds at 5 times their ARR (Annual Recurring Revenue), while others can raise funds at over 300 times. For pre-revenue companies, the valuation gap can be even larger.

More importantly, within the venture capital ecosystem, it is generally believed that founders should actively drive the fundraising process and recommend their companies to investors. Half a century ago, companies often hired investment banks to help them raise funds; however, if a company still adopts this approach today, venture capital firms may no longer pay attention to it.

Clearly communicating a startup's development and plans to investors is what a CEO should do; the CEO should communicate these matters to investors every day, not just during fundraising periods.

There are three types of fundraising approaches: narrative-driven, inflection point-driven, and traction-driven.

Narrative-driven fundraising is driven by a compelling story.

Inflection point-driven fundraising is driven by a "secret" that will impact the company's development. When a company reaches an inflection point, savvy investors will realize that it is time to invest.

Traction-driven fundraising is driven by completed results. Investors may not care about what the company does, investing solely based on metrics.

A little-known fact is that traction-driven fundraising no longer exists. Every company knows that their future will always be better than the present.

Ironically, companies with the best traction often wish for their future potential to be recognized. No one wants to rest on their laurels; to achieve more returns, they need to craft a perfect narrative to explain to investors why the company can earn more in the future.

For some companies, fundraising and IPOs are merely natural occurrences, and they choose to take a step back to tell their stories well. These companies often find themselves mired in the minutiae of daily operations, reflecting on their years of development experience. Fundraising prompts these companies to think about how to perfect their narratives and helps more people understand the importance of distilling core information from the company's narrative.

The Leverage Effect of Narrative in an Abnormal World

If the world were to stagnate or develop in a normalized manner, narratives would not be as important. Historically, most companies have followed the paths paved by their predecessors. For example, if I were to open a restaurant, I would already be well-versed in its potential revenue and cost range. Without many surprises from unforeseen events, people can more easily see the current state of the company and can easily estimate what the company will look like in a few years, with a high degree of accuracy.

However, tech startups fundamentally break this model. They can undergo earth-shattering changes in just five years, either becoming industry unicorns or being swept away by the tide of the times.

One characteristic of the tech industry, compared to others, is that tech companies can choose a very niche track and determine their position within the ecosystem, which can lead to significant differences in their future development.

In practice, the larger differences arise from the continuous growth of company valuations. Every week, we see a company raising funds at high valuations, and importantly, their revenues are also doubling continuously. In Series A and B funding rounds, it is quite common for ARR to grow by 100 times or even 200 or 300 times. However, this is not typical; most companies do not experience this. Yet such craziness does exist, with some companies able to raise funds at multiples of their valuations, and the revenue differences between companies continue to widen. The valuation differences among companies with similar revenue levels are also becoming increasingly pronounced. This is the power of narrative; a good narrative can drive rapid company growth.

There are several reasons why narrative is becoming increasingly important:

The dynamic range of future development is significant. This means that a startup may be worth nothing at first, but ten years later, it could be worth billions. Moreover, this trend is expanding; the largest tech companies are now valued in the trillions. More importantly, in the past decade, the results of most tech company IPOs have increased by an order of magnitude. For example, corporate investors used to believe that, aside from a few once-in-a-lifetime opportunities, most corporate IPOs would not exceed a few billion dollars in market value, and the entire business model of corporate venture capital was built on this assumption. Now we see that this is no longer the case. When the dynamic range of a company's future development is so vast, people's confidence in the company's future becomes particularly important.

Backward-weighted loan-to-value ratios. Most tech companies cannot earn revenue from their first interactions with customers, such as SaaS, open-source, free subscriptions, etc., which is common in many fields. This has also been one of the biggest trends in the tech sector over the past few years and is worth further exploration. Revenue as a lagging indicator is not a bad thing, but it means that investors need to correctly understand a company's value and clearly grasp the key metrics driving future revenue. This also means that companies need to clearly explain to others how to view their business and convince people that based on current product metrics, it can be inferred that there will be higher revenue in the future.

Expanding multiple products or becoming a platform. Once a company reaches a sufficient scale, modern tech companies have come to a consensus: focusing on a single product is not a long-term strategy; to remain relevant in the industry, they need to expand multiple products or develop into a platform. This is almost a necessary path for every successful company; if a company only has a single product and has never attempted to expand into multiple products or become a platform, it is hard to say whether they will ultimately succeed. Excellent companies will see their valuations continuously increase, which will provide ample funding for their future development, and this in turn obligates them to explain why they can expand into multiple products or become a platform and what that means for them.

Positive cycles. Finally, our understanding of how to quantify and predict the returns from positive cycles is still in its early stages. Network effects, economies of scale, and some yet-to-be-named laws will have a significant impact on a company's long-term value, but there is no simple way to infer from a company's early performance. Companies must clearly articulate the positive cycles they are working to build, what leading indicators reflect their potential, and why they have the capability to grow.

Self-Fulfilling Prophecy: When Narrative is Proven

The best example of narrative leverage in the tech field is Steve Jobs' "reality distortion field."

I personally like to think of this narrative leverage as a form of the PE ratio (price-to-earnings ratio), and sometimes I refer to it as the PR ratio (perception-to-reality ratio).

How do we determine whether the leverage of a narrative is good? We often see that many companies' actual developments are not as good as they boast; they are deceiving investors, like Theranos. Those who once made exaggerated promises to gather all the resources to make their exaggerations a reality still need to appear very confident, which is only a fine line away from lying. While there is no perfect method to distinguish between the two, we also need to understand how we should view the leverage of narratives. What degree of leverage is reasonable?

We should also know that not all companies' narratives are fabricated stories by entrepreneurs. Excellent entrepreneurs distill the beliefs within their teams and convey them to investors, instilling confidence.

I believe it is quite appropriate to compare narrative leverage to the price-to-earnings ratio.

In the public market, a stock's price-to-earnings ratio is its market value divided by its earnings. This reflects how high investors value a company relative to its current earnings.

If a company's value is the net present value of future cash flows, then its price-to-earnings ratio roughly represents how confident investors are in its future high cash flows. Simply put, if two companies have similar earnings, the one with the higher price-to-earnings ratio indicates that its investors believe this company will perform better in the future and generate higher cash flows. Over time, rapid earnings growth will bring its performance in line with expectations, and the ratio will decline; if investors continue to be optimistic about its prospects, the high price-to-earnings ratio will persist.

The revenue multiples in startup funding rounds are akin to the price-to-earnings ratios in the private market.

What are the benefits of a high price-to-earnings ratio? It is a low cost of capital. It can be understood as the company borrowing a loan from the future to fund its current development.

Is a high price-to-earnings ratio a good thing? The answer is not that simple.

If they have a high ROIC (return on invested capital) in their use of funds, then their price-to-earnings ratio will be considerable. If your future prospects can secure a loan for your company, and you can effectively utilize those funds to turn your predictions about the company's future into reality, then this deal is very worthwhile. Investors' expectations for the company help steer it in the right direction and ultimately realize its vision.

It's like magic, able to create something out of nothing. It's also like the ouroboros, consuming its own tail yet somehow continuing to grow. Borrowing money from future success to ensure we can succeed in the future could even be called "time travel."

The price-to-earnings ratio is a continuously updated commitment to the future; it can be reasonable or it can present significant issues. If a company's earnings do not meet expectations, this will be reflected in the decline of its valuation and price-to-earnings ratio, and when a company cannot leverage its price-to-earnings ratio and investors' high expectations to improve its situation, it will fall into a negative cycle.

Blatant frauds like Theranos certainly cannot meet their expectations. Their price-to-earnings ratios are terrible; no matter how much past rapid growth has benefited them, they cannot grow to match their valuations.

A more complex situation involves companies like Tesla. For years, there has been intense debate over whether Tesla's valuation is too high or too low, with both sides holding extremely sharp viewpoints. The reason for the ongoing debate is that both sides are correct. The industry in which Elon Musk operates, with the improvement of industry cost curves, has seen many new methods developed, but it also requires a large amount of cheap capital to continue its work. In this trend, Elon Musk is not unique. Similar trends are also evident in fields like artificial intelligence.

Therefore, it can be said that Tesla's price-to-earnings ratio is realized through itself. If Tesla can continuously secure capital through more channels for a long time, it can succeed; if it cannot, it will collapse. Ironically, Elon Musk's various antics have not caused investors to lose confidence; rather, they have allowed Tesla to maintain a high price-to-earnings ratio, and Musk's ability may be the most important driving factor behind Tesla's success.

However, this concept is not unique to the public market. In a sense, the social capital of ordinary people also has a price-to-earnings ratio concept. The price-to-earnings ratio in the public market is just a more understandable example; this concept also represents a view of some future prospect and allows companies to benefit from a bright future now.

Narrative leverage refers to a company's price-to-earnings ratio. It is not only about achieving lower future capital costs but also about everything else the company cares about, making recruitment, customer expansion, and internal coordination easier.

Venture Capital as a Social Bet: The Future Belongs to Entrepreneurs

Modern venture capital is not just about money and capital costs. Most entrepreneurs offer top venture capital firms a discounted price. Nowadays, top venture capital firms provide more than just money; they lend their brand to startups. This can lower the capital, employee, and customer acquisition costs for startups.

LPs may care about whether a company has good returns, but this is not fundamentally related to the entrepreneurs. What matters is whether these returns can translate into stronger brand value or the personal reputation of the entrepreneur. This is why today's venture capital presents a pyramid-like power structure, with the institutions at the top receiving most of the returns.

However, in today's ecosystem, companies have more narrative leverage than venture capital firms. Top companies and their founders are sometimes more well-known than their investors. For example, Patrick Collison, the founder of payment service provider Stripe, has far greater capabilities in attracting investors, customers, and employees than any venture capital firm. More and more entrepreneurs are beginning to possess stronger brand influence than venture capital, which is due both to the increasing importance of entrepreneurs and the stagnation of venture capital beyond helping companies enhance their brand network effects.

Compared to investors, entrepreneurs can better enhance brand leverage. Entrepreneurs can refine their narratives while building their companies, making them compelling and resonating with all potential investors, employees, and customers. Additionally, they have all the resources of the company to bring their stories to life.

Elevating Narrative is Central to Company Building

Every functional department within a company is engaged in internal development, with the engineering department being absolutely crucial. A hallmark of modern software companies is their recognition that the engineering department is not merely a backend department to be outsourced; it should not be treated as just another outsourced commodity but is instead at the core of the company's development.

In today's era, any company that wants to succeed increasingly relies on internal compound development. Moreover, in a challenging environment where it is difficult to achieve success but equally hard to remain unknown, external channels being exploited has become the norm. Whenever you explore a new emerging market or promising acquisition channel, competitors will immediately swarm in, causing any excess returns you achieved in a short time to vanish in an instant.

However, internal compound development is a powerful means to combat this situation, which is why we have always emphasized the importance of network effects and economies of scale. If we liken company development to a polynomial equation, then as the scale continues to rise and approaches infinity, only the highest degree term can play a decisive role, and only the internal organization or ecosystem of the company can continue to develop compoundly without being affected by external factors.

While engineering is a core element of company development, it is not so unique—every high-return, non-commoditized functional department follows the same development path.

The process from marketing to profitability also follows this path. In traditional models, marketing occurs only after the product has been developed, meaning that companies typically choose to hand it over to the marketing team just before the product is about to launch. The simplest way to determine whether a functional department is the core of the company's development or an outsourced commodity is: 1) Does this function have unique characteristics that distinguish it from other companies? 2) Does it have feedback loops within the company, or does it solely rely on external channels to complete its tasks?

A company cannot remove modern growth teams from its core processes; in fact, the core product development and engineering work are carried out by them. Because if such teams are not integrated into the core development narrative of the product, how can the company ensure stable growth?

Brand marketing is also indispensable, but relatively speaking, its importance is diminishing compared to paid acquisitions and, more importantly, core product distribution. If you think about those bottom-up, product-oriented SaaS companies or viral social networks, you should understand why traditional marketing cannot compete with the product itself. Successful companies deeply understand the importance of product distribution; they do not wait until everything is completed to check on the results but choose to plan from the outset.

In the article "Why Figma Wins," I also mentioned how design teams undergo this transformation. In an excellent company, design cannot be a task handed over to designers after the company has made its own decisions; designers must be involved in all core processes and decision-making. Design is not just a task for the company; it is a responsibility that designers need to take on, and a good designer willingly accepts this responsibility, understanding that they must ensure the creativity of the design while also considering how their design process and products will impact the company's core business. A good designer can do this and enjoy it.

Today, narrative cannot be limited to the external framework of the company, nor can it be something done only after all work is completed.

Over the past few decades, Adobe has fully demonstrated to us how crucial corporate narrative is in maintaining the trust and support obtained from investors and employees when a company disrupts its previous business model. Whether it is adding new products, transitioning to a faster internal work pace like a SaaS company, restructuring to a cloud-first infrastructure and pricing model, or evolving from a printing software company to its current scale, Adobe has placed great emphasis on corporate narrative at every stage, which has led to its current achievements.

Those who build corporate narratives must fully understand how employees, investors, and customers perceive the company. The refinement and supplementation of narratives cannot be separated from the company's development and the upgrading of processes and products. Similarly, better narratives can, in turn, prompt the company to focus more on the continuous improvement of its processes and products.

Founders Must Lead the Narrative

We often focus on how much funding a company can raise, but actually obtaining funds is not the ultimate goal of a company; rather, funds are merely a type of resource that can help reduce risk. From a historical perspective, capital has always been the most scarce resource, and the venture capital industry has been built upon the scarcity of capital, which is also the biggest obstacle to company development.

However, today, capital is no longer a scarce resource, and for many top companies, it is not the main obstacle to development. After communicating with today's top tech companies, we find it ironic that fundraising has become one of the easiest operations in company development and risk management; conversely, attracting and retaining a strong team and coordinating their work is what troubles many companies the most.

A company's CEO not only needs to raise and allocate the capital required for various projects but also needs to build a team capable of developing the products the company needs and obtaining the corresponding capital allocation. At the same time, they need to fully understand the company's development direction and guide the team to work around that direction.

The advantages of narrative leverage are reflected not only in financial capital costs but also in the price-to-earnings ratios in financial markets. Moreover, this effect can also play a role among all external and internal stakeholders. It can help you attract talent in the competitive environment of tech companies and instill confidence in customers, convincing them that you will continuously develop surprising products.

More importantly, it allows the team to understand the current state of the company's development and helps them envision what the company will look like five years from now. At the same time, it enables employees to step out of their current self-perception and think about what role they should play in the company's overall strategy.

So who will build this narrative? The answer is complex and varies depending on the audience.

For employees, it is internal communication; for customers, it is marketing or the product itself; for investors, it is investor relations.

However, in most companies, these groups are primarily responsible for managing the dissemination and sharing of narratives, while the construction and alteration of narratives are often not done by them, especially when the narrative impacts the company's development direction.

However, they cannot own these narratives or determine their fundamental principles, which is why we often see significant discrepancies within companies regarding how they view themselves.

Some discrepancies are to be expected because, after all, what customers and investors care about may differ, and employees in different positions will naturally focus on different time spans of development goals. However, most of the time, these discrepancies are entirely unplanned and detrimental to the company's development.

In most companies, only the CEO or founder can shape and reshape the narrative.

Top companies have recognized the importance of founders leading the narrative.

We advise CEOs to prioritize elevating the narrative and to directly engage with their audiences rather than guessing from afar. CEOs of top companies are already doing this and are investing significant time and energy into it.

Stripe is the first company to engage in brand building and has achieved remarkable success. It can be said that no other company has a better narrative leverage than Stripe and its founders, the Collison brothers, because from the very beginning, Stripe excelled in this regard.

Stripe is now quite different from its earlier days, but in its early development, its value was primarily reflected in its ability to allow excellent engineers to work on payment integration and internationalization. Today, people are eager to work at a developer-first API company, but that was not the case in the past. Previously, if a company wanted its best engineers to work on payment internationalization, they would be directly refused, and some would even resign over it. Thus, the fact that Stripe could have its talented engineers work in a field that was initially not well-regarded is already quite remarkable.

Of course, the Collison brothers did not initially set out to attract developers to work at Stripe by deliberately planning to build its brand, corporate culture, or personal reputation. The real reason they were able to attract developers is that the brothers filled a significant structural gap in the payment services field. Only a developer-first, engineering-oriented company can provide better payment services, and only founders like the Collison brothers can build such a team; without them, these engineers would not have chosen to work in this field.

Note: Even today, being able to get talented engineers to tackle problems they typically avoid is still an effective way to achieve high returns.

The Collison brothers may not have initially considered the issue of corporate narrative, but they quickly recognized its importance and made significant efforts in this area. As a result, Stripe's brand leverage among potential employees in the tech field has reached a high level.

Stripe's slogan is "Increase the GDP of the Internet," and its goals and vision are far more ambitious than ordinary payment services, as evidenced by Patrick Collison's numerous projects outside the Stripe platform and initiatives like Stripe Press.

If Twitter is the main channel for tech startups to acquire users, then Stripe is the leading brand among tech-related Twitter accounts. On Twitter, new employees at Stripe frequently share their onboarding experiences, which has almost become a genre of articles.

In the future, more top companies will begin to invest in building their corporate brands or founder brands, with Shopify and its CEO Tobi Lutke being a great example.

In recent years, Tobi has increasingly stepped into the public eye—participating in podcasts, appearing on Clubhouse, live-streaming games, and engaging in AMAs, among other activities. His efforts to attract user attention clearly demonstrate how much he values personal brand building and corporate narrative shaping.

Only by increasing brand awareness and expanding the CEO's influence can the leverage effect truly be realized. Strengthening Shopify's image as a tech company will not harm its performance in the public market, but low capital costs are not the limiting factor for Shopify's development. For a tech company of Shopify's scale, talent recruitment is a long-standing constraint. Of course, having a strong brand and easily accessible funds can help, but all of their competitors also possess these advantages, so the talent war will never cease. Shopify has expanded its recruitment range from Canada to the United States, but its recognition in the U.S. is still relatively low.

In brand building, founders can always shine, but the establishment of a company brand cannot rely solely on its founders; it also requires its own ideas and concepts. Shopify has many other initiatives, such as creating a studio to produce television shows and movies about entrepreneurship and forming an esports team.

Shopify is not the only company doing this. Spotify is currently producing podcasts about how they develop products, Daniel Ek is conducting interviews on podcasts and blogs, and Twilio is compiling a magazine for customers. Of course, Elon is still doing what he loves.

This is an advantage today, and it will become a bargaining chip for companies in the future.

Final Thoughts

Elevating narrative and functional de-risking complement each other; they are two sides of the same coin. If a company is a series of functional de-risking loops, then narrative is the leading advantage for the future.

Founders not only want to take credit for what they have already done but also for what they will do in the future: launching new product lines, adjusting business models, and becoming a platform. If they attribute these future achievements to themselves in advance, then those achievements will naturally become a reality in the future.

More importantly, they hope the team can maintain consistency in work priorities and trade-offs based on the company's future development direction.

What differences arise between future investors and employees who perceive the company as lacking focus and direction versus those who see its development direction as steadfast and clear? The difference lies in the fact that the latter will have a more coherent thought process behind every decision they make, and the corporate narrative will be clearer and more understandable to investors and employees.

In today's market, more and more founders are able to distill and manage the overall narrative of their companies. As companies scale and business models change, the capital markets will increasingly view startups as a type of homogeneous asset, and this situation will only increase.

Refining and elevating customer-facing narratives can achieve product-market fit, and this refinement process should be equally important for investors and employees. Just as we have spent years emphasizing the primacy of product-market fit in the work of founders and how company development aligns with that goal, founders must adopt the same attitude in distilling narratives for all audiences.

Appendix: Creating Truly Valuable Companies

Recently, I mentioned on Twitter that I am glad to see Discord has not been sold, and I hope some platforms will never be sold. While I do believe that even if sold, its price would be low, that is not the reason I hope they won't be sold.

However, companies like Discord are not significant because they are merely achieving normal profits, and there are countless companies that can do that. Meanwhile, truly impactful companies that can influence industry development are few and far between, and this is true for companies like Discord that are still in the development stage, such as Figma, Canva, Flexport, and Benchling, which are all trying to achieve something in their industries. (Note: While I am not worried that any of them will be sold, I still want to remind you that if you are the founder of any of these companies, please do not sell your company.)

In previous articles, I have written that we judge risk enterprises not by how much return they can achieve but by how much value they add above their reset costs. This is also true for companies; a company's value should depend on the value it adds above its reset costs.

Many companies merely fill a structural gap in the market, and whether they exist or not, other companies will replace them. These companies often have higher profits, but they are not important companies. In a sense, companies can always make profits regardless, and the level of profit does not reflect how much contribution they have made. Truly valuable and great companies are those that can lead the future; the solutions or business models they introduce are achievements that we have worked for years to reach.

The most influential companies can even change the trajectory of entire industries and drive their ecosystems to unprecedented heights.

Such companies are only a handful in an era; this is certainly related to their profitability, but profitability is not the decisive factor for their achievements; fundamentally, it is their strong ability to lead industry development. These companies can reshape the industry structure and order in which they operate and can explore and practice new business models for other companies to imitate and learn from.

For a founder, the most persuasive corporate narrative should be that, rather than merely achieving business success, they have grander goals and the ability to change the very nature of the enterprise. For a select few, this is not just a dream; it should become a reality.