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Narrative and Numbers: The Value of Stories in Business

The Elements of Storytelling

In this chapter, the Professor explains how to put  a story in the fundamental numbers of a company. He explains that storytelling is both an art and a craft. Like an art, some aspects of storytelling can not be taught. At the same time, like craft, many components of storytelling such as languages and structure that evoke stronger reactions from listeners, are teachable. The chapter basically deals with how to structure your story, which as an analyst you might want to propagate to the larger audience, in order to make them believe. At the same time, for an investor, knowing about how to create stories, let him/her investigate the biases that are formed when listening to others' stories. 


You must have heard stories about the founders. Investors tend to get attached to the story of a founder that in turn affects their investment decisions. However, this has two dangers according to Professor Damodaran. 


  • Businesses that are known because of just the founders, find themselves prone to the reputation risk of the founder. In the Indian context, what better example than Vijay Malaya and Kingfisher Airlines.
  • Investors who just look at the achievements of the founders often miss to look at the performance of the company. This seems to be true in case of many startups where the founder becomes the apple of the eyes of the investor and they somehow overlook the huge capital drain that takes place inside the company.

Nonetheless, let's point out various stories that we hear about the founders.


  1. The Horatio Alger story: This is a classic, especially in the United States, and it is a variant of the rags-to-riches story. Investors are attracted to this story by the tenacity of the founder in making something of himself or herself in the face of immense odds. 
  2. The charisma story: In this narrative the founder’s story is built around an epiphany, a moment when he or she gets a vision of business opportunity and then proceeds to fulfill that vision. Elon Musk has founded or co-founded many businesses, including SpaceX, Tesla, and SolarCity, but with each of these businesses, investors are as much drawn to him, as a charismatic founder, as they are to the companies themselves. 
  3. The connections story: In some businesses, it is who you know that gives you the advantage, and founders who have the right connections, either because of family background or due to their past roles as politicians or regulators, are given special deference. 
  4. The celebrity story: Investors are sometimes drawn to the celebrity status of a founder; in the belief this status will allow them to attract business and generate value. Jack Nicklaus, Magic Johnson, and Oprah Winfrey have all used their celebrity status to build successful businesses, with many investors being drawn to the celebrities’ names as much as to the businesses themselves. 
  5. The experience story: It is the track record of some founders that draws investors to their businesses. The assumption, when investing in these businesses, is that if they have been successful in the past in building businesses, they will be successful in their new ventures.

Now that we are familiar with some of the founder stories, let's look at business stories that the professor has listed:


The Bully

  • ​Type of business: Company with a large market share, a superior brand name, access to lots of capital, and a reputation for ruthlessness. 
  • Investment Pitch: They will steamroll competition to delive ever-increasing revenues and profits.

The Underdog

  • ​Type of business: Company that is a dis-tant second (or lower) in market share in a business, with claims to a better or cheaper product than the dominant company.
  • Investment Pitch: They will work hard than the dominant player at pleasing customers, perhaps with kinder, gentler corporate image.

The eureka moment

  • ​Type of business: Company that claims to have found an unmet need  in the market, usually in a serendipitous way, and then has come up with a way of meeting that need.  
  • Investment Pitch: They will succeed as a business by filling the unmet need. 

The better mouse trap

  • ​Type of business: Company that con tends it has a better way of delivering an existing product or service that will be more desirable and better suited to the need. 
  • Investment Pitch: They will eat into the market share of the existing players in the market.

The disruptor

  • ​Type of business: Company that changes the way a business is run, altering fundamental ways in which the product or service is delivered.
  • Investment Pitch: The status quo is ineffective and inefficient, and disruption will change the busines (while making money).

The low cost player

  • ​Type of business: Company that has found a way to reduce the cost of doing business and is willing to cut prices on the expectation that it can sell a lot more.
  • Investment Pitch: Increased sales will more than make up for lower margins.

The missionary 

  • ​Type of business: Company that presents itself as having a larger, more noble mission than just making money. 
  • Investment Pitch: They will make money while doing good (for society).

What investors need to understand with respect to business stories is that: 

  • It is possible for a company to have more than one story at the same time. Uber in 2015, was telling the story of a disrupter and a dominator both. This was because Uber was changing the car services market altogether. At the same time, Uber was dominating the taxi and other car services market via its access to capital.
  • The story that a company narrates can change or evolve over its lifetime. For example, Google was the underdog when it first entered the search engine market in 1998 but transitioned into a dominant player by 2015.

In the end, let's find out the characteristics of a good story. You as analysts can use such stories to convey your thoughts to the larger audience to have better impact.

  1. The story should be simple to understand.
  2. It should be credible and should meet the reality test.
  3. The story should be authentic.
  4. Try to give an emotional touch. Here the professor suggests you to be passionate about your story.

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