No magic lantern, just commonsense

This week the successful online e-commerce company Alibaba will make a pitch to investors as it prepares to launch as a public company on the US stock market.

Jack Ma, the founder of the highly profitable 15 year-old company, issued a letter to investors along with the company’s prospectus. In it he described the company as an ecosystem with a long term vision.

The letter contained some striking points. One of them is that shareholders would effectively be third in order of importance in the company’s strategy.

In first place came customers, who for Alibaba are the small businesses using the platform to sell their products and the consumers who buy them. In second were employees. His reasoning is that to give customers what they need the company needs happy, diligent and satisfied employees. Without these two the company cannot fulfil its duty to create long-term value for its shareholders, which is why he put them in the third place.

In last weekend’s Sunday Telegraph Business Review I contributed an article on how small businesses need to prepare for growth and I believe there are lessons in Jack Ma’s letter from which SMEs can learn.

No business can grow unless it is providing what its customers need and, as Jack Ma says, that depends on committed employees. It ought to be commonsense.

These two aspects are central to demonstrating that a company is a viable prospect when it is seeking finance to grow as they will form a significant element for any pre-investment valuation.

If a company cannot demonstrate a demand for whatever it supplies how will it convince lenders that it will be able to repay the money it has borrowed or provide a sustainable return to investors?

I would welcome contributions from others who have similar stories that are aimed at reassuring investors before they part with their money.

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