Why every public company needs an owner's manual.
Here is a magic wand.
With it, any wish you have for your company will be granted.
What do you wish for?
If you answered “People who will buy my stock, hold it, and support us in the long term”, then read on.
But no magic is necessary for today’s article. Instead, I’m going to introduce the humble Owner’s Manual:
First seen by Berkshire Hathaway, here is the 1999 version.
Brought to Australia and updated by both AFIC and Kelly Partners
We talk below about why this is useful, and
Here are 5 examples of draft owners manuals, that we have independently put together:
The Owner’s Manual.
“Dear Quality Shareholder”
What a great introduction for any new shareholder.
It is clear. It is aspirational. It is rare.
The whole first slide of Kelly Partner’s Owners Manual does a pretty good job at setting the right tone for investors. It also differentiates Kelly Partners from being a simple “investment” to something much more aspirational: a partnership.
And it’s true, your investors are your partners. Warren Buffett has employed the same language repeatedly over the years by treating investors as co-owners rather than just stockholders.
And if you want more high conviction shareholders, then this, along with a few other lessons from the Owner’s Manual, is a sure fire way to get there.
What is an Owner’s Manual?
In 1983, Warren Buffett published the Berkshire Hathaway Owner’s Manual, a letter to shareholders that lays out the business case for all shareholders.
It treats every shareholder as an owner, and creates a single source of truth for the 3 million plus shareholders at Berkshire Hathaway.
From an investor’s perspective, the owner’s manual does two things:
- It gives every investor a fundamental understanding of the business and its strategy;
- It emphasises the importance of every shareholder as a co-owner.
The Owner’s Manual operates off a simple principle: quality investors are made, not found.
As I have mentioned in a previous article, there is no such thing as a “good” or “bad” investor. On one register, an investor may be a long-term, high conviction shareholder, whilst on another register, that same person may have arbitraged a capital raise and sold out within weeks, days, hours.
But in order to build conviction, companies have a limited toolkit.
Investors increasingly turn to third parties in order to inform their investment decisions. Whether it is their broker, an app, media, or social media, companies do not have control over the majority of information that investors consume.
Your business is a large part of your life, but a small part of your shareholder’s lives. Most holders have a day job, and they spend a couple of hours each week reviewing a portfolio of 20+ positions.
That is only 6 minutes per week per company - you don’t have much time with them.
By clearly and concisely educating the market as to what the business is and how it can win, an Owner’s Manual removes the need for investors to use third parties to understand the business, and gives companies a scalable way to build better shareholder understanding.
And as far as I can tell, very few companies have an Owner’s Manual. In searching the ASX, the team and I could only find the AFIC and Kelly Partners manuals that I referred to earlier (if you know of another one, please share - I will add to our community resource centre).
What is inside an Owner’s Manual?
An Owner’s Manual gives shareholders an overview of the business, its mission or vision, its strategy, its competitive advantage, and its performance to-date in one simple and easy-to-understand document.
Whilst there is no one way to write one, the team and I have analysed them this week to come up with a formula that we think works pretty well. The key components are below, and you can access some example drafts that we have independently created:
1) Values.
An introduction to the company's core values, mission, and vision, outlining the ethical, commercial, and operational principles that guide the organisation.
2) Shareholder partnership principles.
A detailed explanation of the principles that govern the relationship between the company and its shareholders. It often emphasises transparency, long-term value creation, and partnership.
3) The business case.
A comprehensive overview of the company’s business model, market positioning, and strategic objectives, designed to illustrate the rationale behind the company’s operations and growth strategies.
4) The competitive advantage.
Analysis of the company’s competitive advantages, including barriers to entry, intellectual property, and network effects that protect the business from competition.
5) Environmental analysis.
Discussion of the company's business environment, often including things like sector analysis and sector outlook.
6) Financials.
Summary of the company’s financial performance, including key performance metrics, revenue streams, profitability, and capital allocation strategies.
7) Leadership.
Insights into the CEO/MD’s role, vision, and influence on the company, as well as an executive summary of the leadership team and its credentials.
8) Outlook.
Forward-looking statements and projections about the company’s future, including strategic goals and anticipated challenges. This section often highlights the importance of strategic initiatives and can provide more detail about specific projects or products.
An important building block, but not a silver bullet.
Personally, I am in love with Owner’s Manuals. The few we have created have given me a better understanding of some of these businesses than my prior exposure to newsflow and analysis. Crucially, though, they are not a silver bullet.
To build high conviction shareholders, you don’t just need understanding - you need belief.
The role of the Owner’s Manual is to build enough understanding amongst shareholders so that they lean into future newsflow. Whether that is an investor presentation, annual report, or regular newsflow - these assets will be much more effective if your shareholders have a strong foundational understanding of your business.
In the examples we created (available via our resource centre), we added an email summary and a video script as a way of further increasing the impact of this document. But you could also have copies of your manual at roadshows and conferences, make it the homepage of your investor centre, or even release it as a press release.
So what do you think? Do you think you could benefit from an Owner’s Manual? If you would like a draft made for your business then get in touch!