Platform, Pipeline, Portfolio and Players

If you’ve chosen to read this essay, your work environment is governed by platform, pipeline and portfolio, and the health and evolution of this triad foretell your future as a player on that platform. 

Lately, this triad has been preoccupying me because we work extensively with visionary entrepreneurial players who are building platforms to launch, demonstrate and scale urgently needed new typologies and delivery models for affordable housing. To do that means growing the platform, pipeline and portfolio interactively and holistically. That, in turn, means tackling three distinct capital requirements, using different types of capital, and usually sourcing them from different providers with distinctive yield requirements and yield time horizons. 

The three capital strategies must complement each other because the three entity elements work together:

• Platform is the organizational infrastructure enabling the entity to do its business.  Physical assets include offices, workstations, IT systems and servers, and web presence.  Intangible assets are people networks, databases, marketing and brand presence, previous work products, reputation, contractual relationships with symbiotic parties, and most importantly, the people who work atop the platform. 
• Pipeline is all transactions that are substantively envisioned, in process but not closed, or closed and not stabilized (hence still high risk). Everything in the pipeline is uncertain.  The pipeline grows or shrinks the portfolio.
• Portfolio. Every property, or economic position in a property, that the platform owns or is contractually entitled to – and as such, everything in the portfolio is certain, either indefinitely (via ownership) or durably (via a loan, leasehold or contract). 

Subscription-Style Revenues Deriving from an Affordable Housing Portfolio
In addition to cash flows from normal operations, these include fees from (and inherent profitability of) contracts with identity-of-interest companies that are either a) controllable, because they were written into the property entity’s organizational governance, or b) best value, because they meet the conflict-of-interest disclosure and fairness requirements, which normally boil down to the arm’s-length standard, usually written as “no less favorable to the client than would be obtained by independent parties dealing at arm’s length in the open marketplace.”

In a mature organization, each of these elements supports the other two: The platform reliably produces a pipeline, the pipeline regularly adds to the portfolio and the portfolio establishes multi-year revenue streams that de-risk the platform from the vicissitudes of pipeline transactions. 

When the platform has high functionality, it collectively acts as an R&D lab. The platform generates new concepts to expand pipeline possibilities; the pipeline produces proof-of-concept assets that add brand luster, lure new people and attract new external allies; and the portfolio offers both a low-risk testing ground for the innovative concepts and a potentially capturable instant market for new services. All this synergy creates new Proprietary-Enduring-Disclosable Resources that become part of the platform’s value proposition.

Proprietary-Enduring-Disclosable Resources
(You want to know what yours are, and collect as many as you can)

I coined this term roughly a decade ago to capture things that are:

* Proprietary in that they belong to us, they’re unique and are as good as or better than anybody else’s.
* Enduring in that we can use them more than once because they’re intangible or because each time we deploy one we generate replenishment of the resource.
* Disclosable in that, because they’re proprietary and enduring, we can talk publicly and positively about them, with anybody and everybody, to demonstrate why we’re the right people for the work and without saying anything to denigrate the competition.

Proprietary-Enduring-Disclosable Resources and their corollary, the company’s value proposition, also unerringly point out a company’s core competency, core customer and core business…but that’s a topic for another column.

For the ambitious person who wants to be a player in affordable housing, the right platform can launch a career. The ideal platform for any ambitious executive offers training and structure, coupled with career path and recognition, both psychological and economic. By offering resources the executive can use to lever personal skills more effectively than anywhere else, the right platform makes such a person’s creativity much more valuable both to the executive and the company. What the individual invents—a new affordable housing business line, property typology or financial instrument or transaction—the platform can springboard to scale. 

Who owns the synergy: platform or people?
In any people-driven company, how to divide increased value between platform and players is a topic of continuing interest and (usually constructive) tension.  This too is a topic for another time.

When any material part of platform-pipeline-portfolio goes wrong, the whole company can get out of kilter. A dry pipeline breeds anxiety and ambitious or innovative platform people may get itchy feet and leave (sometimes to start up competitors). A wobbly, waning or problem portfolio of duds or chronically underperforming assets sucks away capital, deflects platform resources away from growth, tarnishes the platform’s reputation and makes it harder for the pipeline to generate, close and stabilize new portfolio assets. 

For all the ails that afflict companies, capital is the lifeblood, and it comes in three forms, sources, sizes and yield expectations:

• Platform capital goes into building the enterprise and usually becomes embedded into its infrastructure, whether tangible or intangible. In affordable housing, it comes from social-venture equity – grant, sweat (including the founder’s ability to be unpaid for a year or longer), family and friends or venture capital investors. No matter what quantum of platform capital one needs, or its precise negotiated terms, it’s always hard to get, always seems too expensive, and is nevertheless always precious when captured.
• Pipeline capital is usually five to ten times larger than platform requirements. Whether debt, equity or a hybrid, it’s speedily deployable (fast turnaround from groundbreaking to offtake), needs to be fast-closing, and as a result, for the growing entity it’s high risk.  The capital is recouped only when transactions close or when they stabilize – and if they don’t close or stabilize, an overwise promising entity can stall, suffer or succumb.
• Portfolio capital is usually several multiples larger than pipeline capital (and its multiple rises as the portfolio grows). It’s risk-averse: it wants to see platform and pipeline funding before committing even conditionally. It’s long-term, so it’s patient, yield-oriented and often institutional.

How then do nascent affordable housing entities find their way from ideation to sustainability and scale? Forty-five years of observing, coaching, and growing entities (three of mine and dozens of clients’) boil down to a three-part formula:

1. Have the right founding player.
2. Launch headfirst only when you’ve secured a minimum runway of 12 months’ platform capital. 
3. Always have a forward-looking three-tier capital strategy and keep your capital availability always six to 12 months ahead of your expected growth in platform, pipeline or portfolio.