3 Reasons Your Business Should Care About Value Management

Having doubled its value in the past six months, Slack valuation was just measured at $2.8Bln, catapulting the company into the media limelight as the fastest growing B2B software business to date.

Despite how awesome Slack can be, it’s not your standard company. For standard companies that do not raise incredible amounts of money twice a year, value needs to be and can be monitored in other ways. But why should entrepreneurs, founders and owners monitor the value of their company and participation at all?

The answer that is usually offered up is that a company is the largest investment of your personal portfolio and because of that you deserve to have a good look at it’s value. But why is it important to look at value and to manage it and to grow it?

Exit planning

Why it matters

Even if you have never thought about an exit from your company, the harsh reality is that none of us are going to be around forever. Planning an exit for an interested buyer, a successor in your family or for the public is part of keeping the business alive even after you have moved on–which is a kind of value on its own.

Why value management

Measuring and tracking the value of your company then becomes pivotal. By keeping a close eye on how much your company is worth and by tracking it’s growth over time, you can get a better sense of what direction the company should go in in order to prepare it for an exit.

Cumulative growth

Why it matters

As said, the investment you made in your company is probably the biggest one in your portfolio. It is giving you a return in three ways: salary -repayment for your time commitment -, dividends -a proportional part of the profits -, and value growth. Indeed, the same way the stocks you hold in your portfolio are growing over time, the participation you have in your company is also growing.

Why value management

If you truly want to optimize the return on your biggest investment, then understanding how much participation is worth and taking action to maximize it gives you a big advantage. Indeed, as we discuss in the next section, small actions can have little impact on profit growth but high impact on value growth, improving the return on your main investment.

Decision making

Why it matters

I personally believe this is the most critical point. As entrepreneurs, we are called to make the best decisions possible when faced with an array of choices. However, as humans, we are limited. We are limited by the information we surround ourselves with and the environments that happen to surround us. Traditionally, profits and revenues are the main metrics for any company and we optimize our decisions and actions in order to increase them both. However, just by trying to maximizing these two, we can run into difficulties and conflicts. For example, hiring and training new sales people lowers profit in the short term but can have a large impact on future revenues.

Why value management

When adding value to profit and revenue metrics you can optimize your decision making. You can take slightly different decisions that could still impact revenues and profit but could impact value in a larger way. As value is based on the long term future of the company, it clarifies decisions based on short term profit and growth because it gives you a single parameter to maximize: company value.

There are many more reasons to adopt value management as a practice in your business. These include scenario analyses, financing tradeoffs, employee engagement via stock options and many more. We’ll write about more and more of them in the near future, so stay tuned!

 

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