Large capital investments are a suspect mechanism for improving your competitive position.
ADAGE
Avoid Large Capital Investments
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RESPONSE
Large capital investments are a suspect mechanism for improving your competitive position. It’s a crutch for the weak. The data shows that among industries with different capital intensities, high capital intensity is associated with low ROI. This relationship also holds true when comparing different companies within the same industry. In fact, the differences in capital intensity are often even greater between competitors within the same industry than they are between industries. Generate competitive advantage by keeping your capital investment below that of your competitors. High capital intensity hamstrings agility. Companies seeking to scale rapidly depend upon large-scale capital investment to build the infrastructure necessary to achieve their growth objectives. Capital decides the winners and the losers in business. The ability to discern the amount of capital necessary to build a strong enterprise foundation is critical. Don’t let greed cloud your vision. Make sure you are making a profit and saving profit for the future.
SCRIPTURE
Proverbs 21:20 The wise store up choice food and olive oil, but fools gulp theirs down.
Psalm 118:22 The stone that the builders rejected has become the cornerstone.
QUESTIONS
How do the Scripture(s) apply to the business adage?
Should efficiency gains be the primary driver of your capital investment strategy? Why or why not?
Are there alternatives to making large capital investments when looking at infrastructure decisions?
Rome was built upon massive infrastructure. The early Christian Church required almost no infrastructure. What lessons are there for Christian enterprise owners in this comparison?
Higher capital intensity equals diminished agility and ability to maneuver. Do you sgree or disagree?
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