In every business there are PASSIVE and ACTIVE KPIs.
Passive meaning the business improves with the general business environment.
Active meaning the business improves through active decisions by the company.
A key example is in private asset managers.
Blackstone and KKR are much more involved in real estate equity, while Ares and Apollo are much more involved in business and real estate debt financing.
While Blackstone and KKR underperformed because of the underperformance in the housing market, Ares and Apollo outperformed on the basis that their floating rate debt is now hitting, in some cases, 9%.
Another key example is companies with growing total addressable markets (TAMs). If the TAM of the industry is growing and you own a certain % of that. Chances are you will have an easier time growing your business versus trying to steal market share away from existing competitors.
There isn’t a better industry than the Cloud Service industry that describes this.
The TAM of the Cloud industry grew 20-30% annually for a decade.
Lastly I want to give you an example of active KPIs.
The most emblematic situation is Intel and AMD.
Both companies make computer processing units (CPUs). And at one point Intel owned nearly 80% of that market, and the market was/is growing. However, Intel got comfortable with it’s CPU dominance and fell back on innovation.
CPUs and semiconductors in general are becoming more and more commoditized, but you still need to be on par with the innovation cycle. AMD offered cheaper and better CPUs than Intel, and soon enough market share in personal computers started to shift.
Intel suffered and AMD rose.
Not everything works always, this is the game you have to play.