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Valuation Matters to You!

“Just because Goldman says this is the right valuation, you shouldn’t assume it’s correct just because Goldman said it. My brother works at Goldman, and he’s an idiot!”

—Andrew Ross Sorkin

For Chris to get what she thinks her business is worth, she came to realize she needed to understand how investors value businesses and glean insights into why some businesses are perceived as very valuable. She noticed that many of these highly valuable businesses have one thing in common—a leader regularly communicating a magnetic vision of the future to anyone who will listen. She realized she has kept her vision for her business to herself. She mentioned this to her peers at their monthly meeting, and they encouraged her to outline her vision to them. She anxiously shared her vision, and her peers were awestruck. “We never knew you had robust goals for your business to achieve such levels of success!”

Chris recognized she had important work to do. It was still fuzzy to her at the time, but she knew she needed a way to better communicate her vision to her team and stakeholders. It then dawned on her that her vision needed to be shared publicly as well and used as a tool to attract investors and lenders to help grow the business.

I have seen Chris, many times, realize her business is being viewed by outsiders as materially less valuable than what she feels is fair. But what really agitates Chris, and rightfully so, is that her smaller competitors—some of them brand-new startups—seem to attract large valuations, capital, and excitement. Her agitation is fuel for her burning desire to understand what outsiders see in other companies but not in hers. Most of her “Aha!” moments will concern how investors and business buyers view valuation.

What Is Valuation?

How do you value your company?

Is your answer a mathematical equation?

Is your answer addressing any items thatcreate value?

If you answered the question “How do you value your company?” with something like a multiple of EBITDA, revenue, or customers, we created this book especially for you.

Academics and finance professionals attempt to make valuation objective, but the reality (in the real world that you know so well) is that valuation is subjective. Valuation is highly influenced by the personal views of the participants in a transaction. Knowing why and how experts and professionals use objective valuation tactics will arm you with an advantage to get what you want—a Breakout Valuation.

Over decades of analyzing and valuing businesses, I have come to appreciate that valuation is simply a present view of what the company will produce in the future. Contrast this with most private market investors who want to value a business based on what it is producing today. Academically, investments, such as stocks traded in public markets, are based on the net present value of future earnings expectations. The challenge with the academic view of va