Valuing a business based on assets and financial performance is a well-understood process, but every investor knows that true value goes far beyond these parameters, either high or low. The key elements of leadership in a company, both personal and organizational, are less tangible but are very important in determining market value for investment, acquisition or going public.
In the investment community, these leadership elements are often referred to as “goodwill”. For an early-stage startup, the goodwill component can easily exceed the size of all financial elements together, or mark a company with good financial standing as not investable.
In his classic book, “The Leadership Capital Index,” best-selling author, business consultant and business school professor Dave Ulrich offers some real insights and metrics for creating the elements of goodwill in the minds of top valuation experts. , I have summed up his key points here as follows:
Leader personal influence. For startups, the entrepreneur and founder are almost always the face of the company. Investors, partners, team members and customers value or devalue a startup indirectly based on the leader’s physical presence, emotional identity, social skills, intellectual agility, ethical values and past performance in the domain. tactical efficiency. These same constituents are looking for leaders who can build the future – focus forward rather than backward, look around, can turn their vision into committed action, and help bring the future into the present. All are able to engage the right people. performance leadership. Everyone wants a leader who gets the job done and delivers on commitments. Leaders are judged on key elements of execution, including focusing on priorities, ensuring clear accountability, managing decision-making, mobilizing others, adapting quickly, and communicating the urgency of execution. People focus on relationships. No leader can work alone, so investors place great importance on leaders who take care of their people. Positive people management elements include good communication skills, building strong teams, making time for coaching, strong people relationships, and facilitating growth and succession. Leading Brand Development. Each business and brand has unique requirements to fit its market environment. Leaders are assessed for their ability to fit into the brand community, adopt essential values, maintain the right strategic priorities, and deal with the current organization stage.
In addition to proper goodwill by a great leader and an excellent team, investors will also use their due diligence process to assess the organizational structure and effectiveness. The main parameters of this evaluation will always include:
The power of business culture. Research has confirmed that culture is a primary driver for financial performance, customer experience, and team productivity. Companies are valued based on their ability to create and align their people with the desired culture and their ability to communicate that culture to customers, suppliers and partners. Focus on talent and people development. Investors want organizations that manage people’s talent and development through good recruitment, performance feedback, on-the-job growth and commitment building. They seek the use of talent analysis, such as productivity per employee, as well as attitudes and attitudes toward employee satisfaction. performance accountability procedures. Good performance management is more about rewarding desirable behavior than punishing poor performance. There should be processes in place to clearly define standards, differentiate performance, link results, award rewards for accountability, and provide regular follow-up. Modern information management tools. Power and the ability to influence others come from knowledge. Having information is much more than just having access to data; This requires knowing how to synthesize, interpret and function. Organizations are valued by how well they leverage the best technology, and turn information into action. Stable and friendly work environment. The most valuable organizations are able to take control of their work environment through innovation to cope with the ever-increasing pace of change in culture and market. This means adapting to social trends, new technologies, economic conditions, regulatory requirements and worker demographics.
Investing in strong leaders, including entrepreneurs like Steve Jobs or corporate icons like Jack Welch, has long been recognized as the key to low risk, and high valuations on the seller’s side. This is one of the best reasons every business owner I know ups their game on leadership and organizational excellence. How much fame can you and your company achieve today?