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August, 2010

Creating Above-market Value - What?

I was recently asked by an associate for a more complete meaning of Creating Above-market Value – my tag line. Despite my catchy elevator message of “Helping owners and CEO’s prepare their company to negotiate from a strong value position when considering an offer or additional investment in the company.” I realized from their blank expression that I was not reaching my audience. My true audience was not just owners and CEO’s planning to exit, or preparing to attract additional investment capital but all businesses that seek a valued position in their market that is above others.

Why do I believe this is an important concept to communicate?
I have participated in turning businesses around, preparing a company for a high value sale, and personally, with my partner, the sale of my own company. In each of those experiences the fundamental goal was to create a business that was differentiated from others in the market place by the way they were led, the effectiveness of the processes, the accuracy of the metrics and the adaptability of the financial system as a tool to manage the business. The buyer of our company described us as a step above the others in the marketplace which, in their minds, justified the above-market value that they establised for our company.

What is Market Value?
Market value can be expressed in at least three of the following ways:

Financial
We generally think of market value of a company in terms of market cap or stock price. This is one measure of a company’s value in terms of what someone is prepared to purchase either one share of all of the shares of the company. Financial value may also be the measure of the annual dividends (annual return on shareholder investment) that shareholders receive for investing in the company.

Market
On the other hand we also value companies in terms of who we like to do business with because of the “value” (or brand value) they offer us as purchasers of their goods and services. The “value” gives us a benefit, an advantage, an exceptional experience at a reasonable price and a long-term relationship should the product require after sale support. In this case “value” is not expressed in financial terms but in how we, as customers, value the use of their product or service in our daily lives.

Employees
A company does not provide consistent exceptional financial or market value without employees of the company experiencing a personal value designing, producing, marketing, selling, and servicing the products and the customers that they serve. This value is not what they see in their paycheck but the association they enjoy being part of an organization that has a leading market position - a valued position - and the prestige they earn through hard work and diligence developing and sustaining that position.

What is Above-market Value?
Above-market value is not only a financial value, or a recognized market leading position and not just having a quality relationship with its employees. It is the sum total of all of these “value” factors. Creating above-market value does not happen over night and not by accident. It is the result of an intentional and purposeful strategy that combines quality leadership, process management, effective feedback tools to deal with the unexpected, and organizing their financial's to effectively manage the business.

Summary
While owners or CEO’s trying to sell their companies are probably the ones most likely to resonate with the above-market value concept it is a concept that all businesses can relate to. A company effective in achieving an above-market value position whether they are on the verge of a sale or not, will have successfully developed their leadership, competitive processes, effective feedback systems and organized financial's to manage their business at a high level of performance.

My passion is working with owners, CEO's and leadership teams on how they can incorporate a "Creating Above-market Value" philosophy and practices into their daily business process. I hope this expanded explanation was helpful to you. Pass this onto someone you know who could benefit from using this approach in their business.

Regards,
Mike Brice
Phone: (206)226-1617
Email
Blog

Feature Article

The following summary is from an article published by Inc. Staff in Inc.com and covers the purposeful vision of the owner, founder and leader of Patagonia,Yvon Chouinard, winner of a 2010 Top Small Company Workplace award.

Great workplaces aren't born from some accidental confluence of motivated workers, bountiful benefits, and dogs in the office. They are created, purposefully, by leaders.

Yvon Chouinard never wanted to be a businessman, but once he realized he was in business and people working for him, he sat down and stated their values.

  1. We wanted to be able to go on a climbing expedition for six months and not have the company fold in our absence.
  2. We wanted to work with friends.
  3. We wanted our families close by.

He wanted to blur the distinctions between work and play and between work and family. He created a business that was to their liking. It turned out the way they did things was to other people's liking as well.

Now as a company with annual sales exceeding $300M and a company culture where employees want more than just a paycheck they have over 900 applications for every job opening. The company has remained private preferring to stay in their market niche and protect their brand.

The work hours are relaxed and employees can keep odd hours so that they can enjoy other pursuits as long as they do not impact their fellow employees. Patagonia was an early adopter of using on-site child care. Many of the employees are women in high-level positions and having on-site child care avoids employee replacement costs - headhunter, lost productivity, training,etc. Employees are given two weeks of paid time off each year to work at the environmental organization of their choice which compliments Patagonia's policy of giving 1% of their sales to environmental causes.

Chouinard is very open with employees on company matters which creates trust. This maintains a message that there is no hierarchy and everything is very honest and equal. There are no special parking privileges and he buys lunch in the cafeteria like everyone else.

Click here to read the full article.

Note: I found the Patagonia story of particular interest due to the deliberate strategy that the owner, Yvon Chouinard, used to develop his company, use his love for mountaineering to identify with his customer base, incorporate a positive work climate, encourage and underwrite employees to invest in non-profit service and channel company profits into programs highly valued by his customer community.

This begs the following questions:

  • How are you identifying with your customer community and developing their loyalty?
  • How have you integrated your employees into that equation as well?
Management Resources
Articles:
Leadership: From insisting on doing too much alone to avoiding confrontation, leadership blind spots are common and can be lethal for business
Discover Your Leadership Blind Spots


Personal Development: Technology has transformed the business world. Unfortunately, many corporate executives and directors haven’t quite figured out what to make of that yet. That’s why dinosaurs like Motorola, Sony, and Nokia are finding themselves in unfamiliar territory, beset on all sides by more nimble competitors.
6 Traits Execs Need to Compete in High-Tech World


Management: Employee problems are almost always management problems. In fact, most organizational, business, product, even technology problems are actually management problems. That means that, not only is it up to management to solve them, but in most cases, management caused them to begin with.
Management Lesson: Don't Let the Tail Wag the Dog


Outsourcing: Companies that successfully create and sustain value year after year are rare. Many try to, but a recent study of 2,000 companies over 10 years by our consulting firm, Bain & Co., found that only one in 10 achieved sustained, profitable growth. One activity that sets such winners apart: They often use capability sourcing in more innovative ways than their competitors.
Outsourcing Can Do Much More Than Just Cut Costs

Video(s): 
Leadership: Top executives who are driven by vision, empathy, and listening.
Three Styles of Leadership


Blogs: 
Process: If you are looking only at what new products you can offer, you are missing a chance to connect with your customers in a significant way.
Change Your Process to Boost Profits


Cloud Computing: Accessing applications and processing power are not the only ways small businesses can take advantage of cloud computing. Storing data in the cloud is a way to slash costs and respond to growing customer demands.
Which Cloud Computing Program is Right for You?


Metrics: Don't fault BP for trying to balance the issues of cost, safety, and profit. The company's mistake was in the metrics
BP: A Failure of Focus and Metrics



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