To fully understand--and exploit--your company's inner strengths, you need the perspective of someone who can see those assets more clearly then you can: an outsider.
To fully understand--and exploit--your company's inner strengths, you need the perspective of someone who can see them much more clearly than you can: an outsider
the HIGHLIGHTS REASON FOR VALUATION: To focus growth strategies on maximizing value within the corporation
the PLAYERS COMPANY: Walcoff & Associates, an information-technology consultancy based in Fairfax, Va.
founded in 1982
CEO, Carol Walcoff, age 53
$12 million in revenues
specializes in work for federal government agencies and the country-music industry
APPRAISER: David Lucien, owner of Interpro Corp., based in Reston, Va.
10 years' experience advising entrepreneurial companies in maximizing value
former CEO of Tempest Technologies, which went public in 1987
founded Interpro in 1989
the PROCESS TYPE OF VALUATION: Comprehensive valuation plus strategic management consulting ("value-creation strategy," in Lucien's parlance)
TIME FROM CONTRACT TO WRITTEN VALUATION: Approximately two months
COST: $60,000 (for all services, including the valuation)
final VALUATION SCENARIO ONE: With no changes in organizational structure or operations, revenues projected to be $12 million in 1999, and earnings projected to be flat to a loss of $100,000, a valuation of $5 million to $6 million
SCENARIO TWO: With the spin-off of CountryCool.com, less of a product focus for the company's business activities, revenues projected to be $16 million in 1999, and earnings projected to be $1.2 million, a valuation of $10 million to $14 million
the FUTURE THREE WAYS TO INCREASE VALUE: 1. After the spin-off, aggressively pursue focused growth in each of the two separate businesses
2. Broaden market niches or add upper-end technological expertise through key acquisitions. Supplement bank credit with investor financing if possible
3. Aggressively raise and invest capital to establish CountryCool.com as a major entertainment-industry portal
the BIGGEST SURPRISE CAROL WALCOFF: "When I first learned about the ways that a company could be valued, I thought, 'Oooh, that's not how I think about my company. Our value can't be boiled down to a series of formulas!' But I've learned to recognize that this kind of information can help you do a better job of running a fast-growing company. And it's not only useful--a valuation tells you things that you can be proud of having accomplished."
Entrepreneurs usually don't rely on full-scale valuations when they're developing fast-growth business strategies. But to hear Carol Walcoff, the founder and chief executive of Walcoff & Associates, a $12-million information-technology consulting firm headquartered in Fairfax, Va., tell it, by not doing so they're missing out on a tremendous opportunity. "Knowing where the value is--and isn't--in your company can be an extremely powerful tool when you and your key managers are determined to maximize it," she confides.
Despite the fervor of her conviction, Walcoff is a relatively recent convert. For most of her company's operating history, she viewed valuations as a costly and time-consuming diversion from the business at hand: something to worry about only when her bankers insisted. Then, while searching for businesses to acquire in an effort to broaden her company's niche as a Web-site designer and upper-end technology consultant to federal government agencies, Walcoff and two key managers, chief financial officer Bob Wiener and executive vice-president Jim Dixon, learned differently.
The trio got excited about one possible acquisition candidate, a high-tech company with several million dollars in annual sales and a client base somewhat different from their own. They were so excited, in fact, that they contracted an independent appraisal firm, as well as their own corporate attorney, to value the prospect and develop an appropriate bid.
"It was unbelievable," Carol Walcoff now recalls. "The appraiser concluded that the company was worth $1.1 million. Our lawyer told us it was worth $600,000. Meanwhile, the company was telling us that it was worth $1.6 million. That gave us a sense of just how subjective this whole process was."