The middle of the book is where margin goes to be polite. It is rarely where it goes to compound.
Companies describe their customers as a market. The more useful version is a distribution. At one end, a small set of relationships earns more than its cost of capital and teaches the firm what it is good at. At the other, a set of relationships destroys value and is tolerated because the revenue is visible and the cost is spread across functions that never present a single bill. In the middle sits the average customer: respectable, familiar, and almost never the reason the company will be worth more in five years.
Average customers are dangerous because they justify average investment. They keep a product line open, a region staffed, a discounting habit alive. No single decision looks reckless. The portfolio does.
If the document cannot say what will shrink, it is not an allocation. It is a wish.
A capital allocation review worth the name does three plain things.
01
It prices the cost to serve, including the senior time that never lands in the gross margin. Many “good” accounts are good only because a founder is still doing the delivery.
02
It separates revenue that funds learning from revenue that funds habit. A new segment can lose money on purpose. A mature segment that loses money out of custom is a decision that has not been written down.
03
It names the stops. Most plans are lists of starts. The reallocation only becomes real when a dollar, a team, or a product is released.
Boards often ask for a growth thesis when they need a stop-doing list. The thesis can be one page. The list is the part that changes the cash.
This is not an argument for smallness. It is an argument against the polite diffusion of capital across everything the company has ever said yes to. Concentration is a management act. It requires someone to disappoint a customer the firm has outgrown, and to say so before the budget is locked.
Engage
Tell us the decision in front of you.
We do not need a deck. We need enough to know whether we are the right practice.
