Capital value is not built by accident, nor is it necessarily a simple equation against profit. Whether you are consciously growing your family business for future generations or just trying to make it successful, a view to capital value from the day it starts will underpin its performance.
Active Knowledge Question:
What do you think underpins the capital value of your business?
In last week’s posting, ‘The Accidental Family Business’, I spoke to the importance of never viewing your business in the present and always having an image of it continuing over future generations, even if you intend to sell it at some future date.
This view to the future will assist you in compounding the capital value of your business over its lifetime, and to build a business that will endure.
Many business leaders when you ask them to consider capital value will automatically think profit and look to what profit they have made over the last few years, but importantly their plans to grow it in future years. For them, capital value is all about a multiple on profit. But this is a very limiting view.
I like the expression ‘value lies in certainty’, because it draws you to the question, what makes me certain that the performance of my business will continue into the future? What makes me certain that the profits I have earned will continue. Profits are only an outcome, and to focus on profits is to ignore the catalysts that produce those profits.
Capital value lies in those catalysts and value is compounded over the lifetime of your business. Here is a simple list of the intangibles that often support capital value:
- Artistic and design expressions
- Brands
- Code
- Communities
- Contractual rights
- Data – habits and preferences
- Human capability
- Places and locations – offline and online
But if you are really serious about building the value of your business, then your core catalysts fall under three categories:
- Core:
o Leadership
o Purpose
o Relationships
o Vision
o Culture
- Focus:
o Customer
o Capability
o Strategy
- Fuel:
o Rewards
o Barriers
These catalysts form your competitive engine, which sets the floor and ceiling to the success of your business.
Think of your business continuing for generations, and you will be thinking of investing in the catalysts that drive capital value.
An entirely new level of performance.
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All the best in the success of your business,
Richard Shrapnel
