CEO Coach Blog post June 13, 2018
Rethinking “Build Value for Your Company”
CEO’s hear this a lot: “Your Prime Directive is to BUILD VALUE FOR THE COMPANY.” We tell CEOs that everything must be run through the filter, “Is what I’m doing, being asked to do, spend time or money on, going to build value for my company?”
We even tell that to CEOs who have not yet taken outside investment, unlike who have taken investment. They have a new boss – the investor or investors collectively. They made a written agreement with those investors to work to build value for the company in a good faith effort to return a multiple of the invested capital back to the investors.
Let’s talk about broader definitions for the term ‘value’ with respect to ‘building value for the company’ that CEOs must have front and center in their thoughts every day.
- The definition of ‘Build Value for Your Company’ is far more complex than simply adding dollars to your bottom line. Even if you’re running a small lifestyle company you have no intention of sharing, let alone selling, your ‘value’ is what you derive from your business. Pleasure, satisfaction, social standing, independence, joy, relationships, connection to the community of consumers you serve and the vendors you support, your ability to support your employees financially and reward them emotionally, socially, and intellectually as well. ‘Value’ is not always about money.
- The idea that you must build fiscal ROI on a quarterly basis is truly an idiot’s errand. CEO’s at the world largest, most powerful multinational corporations focus on the next quarter all the time. Warren Buffet and many others decry this short-term focus at the expense of the future. Depleting our ozone layer, lumber, fish, and natural resources worldwide at the expense of our great, great grandchildren’s inheritance of this planet is foolish. If we, as humans, are supposed to ‘build value for our enterprise – Planet Earth, the only residence in which we can survive without undue amounts of gear at the moment – then as we rape the land and the seas, we are focusing on immediate gains and not mid-term gains, let alone long-term success of our species, the Investors in this planet. We’re failing. And so are CEOs who focus only on growing their company’s cash flow at any cost.
A More Nuanced Understanding of Building Value
To start, ask if the CEO is taking a longer view of her company and its future. Does she see the whole playing field, with assets, threats and opportunities well laid out? Does she understand what KIND of company she can build in this environment, balancing threats of competition, macro and micro changes in her consumer base, and with the talent she has and can acquire?
Who are ALL stakeholders in her company? The employees, vendors, and consumers, as well as the investors. Is she treating these constituents fairly? Openly? With good understanding of balancing sharing generously with competitive threats that limit sharing, for example? Is she setting clear expectations for new hires about the company’s corporate culture? Employees succeed based largely on how well they fit and enjoy being in a specific type of work environment and culture. Employee churn numbers will show if the CEO is building value for employees.
Corporate culture extends to customers as well. Is the CEO building a culture of ‘us against them’? Do employees feel (or are they being told) that employees and the company thrive at the expense of the consumer? How will this affect the long-term value for the company?
Investors and their ROI are the easiest metric for building value. That’s why we focus on them. Investors want money. More of it. Lots of it. More than their colleagues got from a different investment. Investors get all their jollies from just one thing: financial returns. If you are the biggest do-gooder in the world today and don’t return capital to an investor, the investor is not going to be bragging about being an investor in your company, because you’ve made them look and feel the fool. They’ll only brag about being an early investor in a social cause if they ALSO made money on it. Then they are both brilliant and good hearted in the eyes of their colleagues.
It’s answering the OTHER questions about building value for your customers, employees, community, suppliers, etc. that are harder to answer. In these answers though, lies the key to a much longer term success.
Getting Capital to Scale Quickly
We’ve been talking about value on a macro scale. Yet most startup CEO’s grapple with building sufficient value in their early stages to raise capital. They need to tick off ‘value’ inside their company to get a VC to put down cash to build more value at a faster pace and scale.
When you are about to inflect, in other words when you have a working model, not just a front end prototype, and you have the first orders in house and you’ve protected IP if you have it, then you approach VCs to get capital to increase your marketing, add more features, hire your sales team and dominate a market. Venture Capital is not for early stages. It’s not for ideas. It’s for quickly scaling what you already have.
This is when CEOs must be looking at what Venture Capitalists value:
- Operational businesses – You’re in business now; you may be small, but an operational business must have launched a product and proved someone wants to buy it.
- Do the principals have to work Full Time at the startup? – Absolutely, yes! Investors look for commitment on the part of leadership, and intense focus.
- Tested markets – You know what sells to whom, for how much. Show a proven market-product fit.
- Defendable IP – Patents that can’t be easily breached. Process patents are not worth the paper they are printed on. If you have a process to rate something, someone else can ask different questions and go around your patent in an afternoon. If you have the patent for the idea of rating the thing at all – in other words, it doesn’t matter HOW a thing is rated, only THAT it is, that would be worth something. Product design patents are much stronger thus more valuable.
- Killer teams – Did you attract people who have been there, done that in a closely related startup and who know where the rocks in the water are so you can get to the other side of rough waters faster and more cost efficiently? Do you have a kingpin on your advisory board – someone who is a household name in a relevant industry who thinks you’re the next big thing? Did your technical team built something equally complex, and are there only a dozen such qualified people on the planet who can do that?
- Customers – are you selling to multinational corporations and you’ve already landed three or four such clients? Large enterprise generally has a long sales cycle. If you’ve already closed a few, your next sales will be faster with these reference clients that make other prospects immediately trust you.
All these represent VALUE for your company as you head to a VC to seek capital to scale.
Tips for Startup CEO’s
Think broadly about value at every stage of building your company.
- Be strategic. If you’re looking at next quarter or even ‘this year’ only, you’re not looking out far enough. Work your way back from a long-term vision. How you get there can often include side roads and pivots, but the long-term vision is your rudder in the water. What are you building and why will it be so good for the planet that the planet will continue to use it for a long time to come?
- Consider the value of your company to your employees, consumers, and suppliers as well as your investors. How can your company serve and build value for each stakeholder?
- Set good expectations for your earliest investors – the angels. Articulate your long-term strategy and your mid-term strategy clearly and repeat it in all your reporting. Long-term strategy is how your company will change a part of the world at scale. Mid-term strategy is a statement of your vision for the size and standing of your company at the end of the coming year or thereabouts. It includes customer acquisition goals, development goals, and more. Focus hard on the mid-term strategy and note progress to that goal quarterly. Good for you, for your employees, and for your investors.
- Identify today all the elements of your company that can be described as being valuable in one way or another. List the items, and in the next column note which stakeholder will find each valuable. In the third column, WHY that stakeholder will find it valuable. Once completed, sort for investors and highlight those elements in your pitch decks. These change over time. So does your deck. Keep it updated.
- But don’t stop there! Sort for other stakeholders, starting with employees. If you want to build a killer team that will impress the hell out of investors so they give you capital so you can change the world, start with listing what your employees want and what you can give them. The overlap of this Venn diagram is gold. Hint: ask the employees. They don’t just want cash and foosball machines in the lobby. Ask them. If you are getting requests that are not in line with your corporate culture, this is your wake-up call. You’ve hired the wrong people. You can’t make them happy and the fact that they aren’t happy or going to be happy is not going to do you any good. Fix that. Fast.
- And lastly, when looking at how to Build Value for Your Company, think: what KIND of company do I want to build? Do I want to sell it? How large do I want it to be? VC money is not the only way to fund a company. Know what kind of company you want to build. It will inform your questions about what value means for your company.