portfolio-strategy

Portfolio strategy

Most organizations fund by inertia. Last year's allocation plus a percentage, adjusted by who argued hardest. Portfolio strategy is the discipline of deciding again, deliberately.

Assess each line on two axes

Attractiveness — is this a good place to be? Market size and growth, structural profitability, concentration of buyer power, regulatory direction, and how the economics behave as it scales.

Right to win — is it good for us? Our position relative to alternatives, the assets or capabilities that transfer, and whether the advantage is durable or borrowed.

The combination gives you four postures, and the honest one is usually uncomfortable:

• Attractive, we can win — fund properly. Underfunding these is the most common and most expensive portfolio error.
• Attractive, we cannot win — the seductive trap. Everyone wants in on a good market. Entering without an advantage funds someone else's growth.
• Unattractive, we can win — harvest. Run for cash, do not invest for growth.
• Neither — exit. Slowly and reluctantly is how these consume a decade of attention.

Judge on marginal return, not absolute size

The question is never "is this business good." It is "what does the next dollar do here versus elsewhere." A large profitable line may be a poor place for incremental investment; a small one may be the best.

Watch for cross-subsidy. A weak line supported by a strong one is a decision, and it should be an explicit one with a thesis and an end date — not an accident nobody has looked at.

Exit is the hardest decision and the most valuable

Sunk cost, internal advocates, and the discomfort of admitting a bet failed all argue for one more year. The test is prospective: knowing what we know now, would we start this today? If not, the only question is how to exit well.

Exiting frees more than the money. It frees the attention of the people running it, which is usually the scarcer resource.

Plan exits properly: customer commitments, employee treatment, and contractual obligations. A badly run exit costs more than the business was losing.

Running a review

Same evidence for every line, prepared by a neutral party rather than by each line's advocate. Set the criteria and weights before seeing the numbers — weighting afterward reproduces the allocation you already had.

Force a ranking. Tiers are how everything stays funded.

Sources

references/sources.md in this skill lists the outside authorities that settle the questions here — what each one is authoritative for, and what you may do with it. Check them before answering on anything they cover, and cite what you used. Most are free to read and not free to reproduce; the use note on each is binding.

Never

• Fund a line because it is large. Fund it on marginal return.
• Keep a line alive on sunk cost.
• Starve a line without deciding to exit it. Slow starvation costs more than a clean exit.
• Review the portfolio only when a line is already in trouble.

Return contract

Each line with its posture and evidence, the recommended allocation and what changed from last period, what you are stopping, and the indicator that would reverse each call.