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Failure: Do it cheaply and less often

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Fast Strategy

Boost value with a quick health check.

Amid the talk of strategy, vision, values and goals, there’s one constant that never changes. That’s the mission. What is it? It’s to optimize value for all shareholders over time. Sounds unfashionable, but that’s the reality.

No business can survive if it does not generate positive value. If it’s worthless, it will die. Shareholders won’t prop it up forever. That’s why very few startups survive beyond five years.

It’s the same for all sorts of shareholders. No one wants their pension fund or super scheme filled with shares in firms that don’t grow in value. 

Even Not-For-Profit organizations have to find ways of being Not-For-Loss. Charities that don’t optimize their fundraising activities can’t help anyone. A business serves the community by providing jobs, offering services and delivering products. It cannot do any of those things if it goes broke. 

Optimizing value does not mean you don’t behave with integrity. You still have to manage astutely. And you can still engage your employees, boost collaboration or foster innovative ideas. It’s just that you can’t do any of that if you don’t exist.

How can we focus on growing value?

Four things determine the worth of any enterprise. Finances. Sustainability. Market power. Cyclical timing. Think of yourself as a buyer, then think about each of these.

Finances. A viable business doesn’t changes hands for 1 times its annual earnings. It’s usually a multiple of 2X or more. That means every dollar you add to the bottom line lifts the value of your business by more than a dollar.

Simple things achieve this. Even just managing your cash flow to get money in quicker and out slower means a lower overdraft or more cash at the bank. Either way, the bottom line rises and so does your value.

Sustainability. No one will buy a business that isn’t sustainable. If you make a million dollars this year but earnings halve the moment you leave, don’t expect someone to pay a big multiple of that million dollars. If you want to take value with you, you have to leave value behind. 

Market power. It’s not just a matter of size. You might be a niche player, but if you own that niche, you command a greater value. How powerful is your market position?

Cyclical timing. Cycles have a huge impact on value, yet you have no impact on the cycle. Markets are driven by events beyond your control, like financial crises, wars or global trends. What you can do is respond. Your job is to ensure that value is optimized wherever you are in the cycle. 

Two free tools will help you fix this. 

One is a short quiz to rate your performance in all four areas. The second uses 120 prompts to stimulate ideas to improve your rating. They’re both complementary. If you’ve got an iPhone, I’ve made the whole process available as an app, which is also free, at least until the end of this month.

This is about simple strategies that can be put into practice immediately.

If you are serious about fulfilling your mission, click here to check out a) how you are going, and b) how you can go better.


Reader Comments (6)

Agree with you that you have to create shareholder value. Trouble it everyone thinks that means short term gains in share prices. That's what's made it unfashionable. It's not about share prices, it's about creating value.

August 20, 2013 | Unregistered CommenterCashmore

I think it was Warren Buffet who said "price is what you pay; value is what you get."

August 20, 2013 | Unregistered CommenterRobbie Scheaffer

You are right about sustainable management, but it's not easy when you are a one or two man show. I would like to sell my business, but I'm the only business getter I've got. To make a sale work for me, I've got to train someone up to do what I do.

August 20, 2013 | Unregistered CommenterRupert M

Cool app.

August 20, 2013 | Unregistered CommenterVanilla Cafe

Good point about not-for-profits. I work for one and we started running through the Value 120 download today. Not everything is relevant but some of them really highlight the business practices we should be doing. Not-for-profits have to be sustainable too.

August 20, 2013 | Unregistered CommenterRaynella Schuster

Love the gorilla in the room. There's one in every business. Buyer beware.

August 20, 2013 | Unregistered CommenterMarion S

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