Getting out at the top
Tuesday, May 1, 2012 at 10:00AM
Nice work if you can get it
Sooner or later, entrepreneurs sell their business. It’s tradable just like any other asset. Ideally, they do so at the right time, preferably when their life’s work is highly valued.
It’s different to “getting out at the top”. That’s a more dubious concept. For a start, it’s hard to do. It’s often more by chance than design. Can you really predict the top? I can’t. In forty years in finance, sometimes I’ve been right; sometimes wrong.
Maybe you can. Try this. The stock market is a good indicator of asset prices. Will markets end 2012 above or below present levels?
While you’re at it, answer these.
Will the global economy expand or recede because Greece either defaults or doesn't default? If it does default, will stock markets rise on the resulting certainty, or fall on despair? Will North Korea's next missile actually get airborne, and if it does, which way will it go? If you know the answers, please text me ahead of time.
There are just too many wild cards.
I remember share prices tanking when Iran invaded Kuwait in1990. That was because investors thought a bigger war was coming. They were right. The first Gulf War started a few months later. When it did, share jumped. They kept rising for several years. Evidence can point either way.
Then there’s the Black Swan. In his book of the same name, Nassim Taleb pointed to the evidence behind the confident lifestyle of the average turkey. For its entire life, it sees evidence that humans are friendly beings that provide food and shelter. Then one day, usually just before Christmas, all hell breaks loose. So much for the evidence. What can you do?
Build it and they will come.
The value of any business is affected by cycles – of your industry, market, product, or economy. Even the business itself. You probably have a feel for how those cycles move but predicting the peak is still a gamble..
You have no control over the cycle. You do, however, have control over your business. The mission is to ensure that value is optimized at any time. That means you’ll be in the right shape when the right person comes along at the right time.
Who’s that? Probably someone you haven’t met yet. They might want your business in order to grow theirs. Maybe they just want to eliminate you as a competitor, or pick up a broader customer base or buy a niche in which they are not strong, or because of whatever it is that makes your business valuable.
Your job is to make it so daily.
By optimizing value, you introduce a random opportunity for a positive Black Swan. It means that no matter when the cycle peaks, your business will be at its most valuable.
Where are you now? For a free health check on maintaining the worth of your business, download my free Value Audit by clicking here.
Reader Comments (2)
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