"A Positive Moment" by Rob Slee!
Rob is widely recognized as the country’s foremost authority on the capitalization and financial management of privately owned companies.
A Positive Moment, by Rob Slee
As we leave 2011, I want to reflect on some positives. Of course, I’m not talking about macro-economic conditions, as Europe, the Fed, and the US Government have done their best to destroy the worldwide economy. Rather, I’ll focus on micro-economics.
Over the past year I have seen wondrous examples of extreme value creation on a company level. Here are just a few:
• A couple of machinists who were each working 80+ hours a week in their small, break-even machine shop adopted the Midas message. They aggregated the space that used their machined parts. Now they each work less than a day per week, and each make more than $15 million per year. Their company is worth more than $150 million, and the sky is the limit.
• An aerospace-related company took a chance 18 months ago and introduced a departure solution to the industry. The bet has paid-off, as the company will make more than $5 million next year. Two years ago it earned less than $1 million. The owner created more than $20 million in company value in less than 2 years.
• An industrial company has been taking advantage of opportunities to supply extremely large companies with rather mundane services. In less than 3 years, this company has 10x’d its profits to more than $20 million.
What do these extreme value creators have in common? I think three things.
First, they are dedicated niche-aholics. All three realized that you can’t be all things to all people, so they specialized and offered compelling value propositions in their niches. I can’t imagine small to mid-sized companies creating extreme value this decade unless they leverage niche market positions.
Second, the owners are exponentialists. Incrementalism is dead in the Aggregation Age, because change is now exponential. Those who position themselves in front of the change wave can generate dramatic results in short periods of time. For the prior five thousand years or so before the 1990s, humanity experienced arithmetic change (1 plus 1 plus 1, etc.). Humans were the agent for change then, and we change ever so slowly. Technology is now the agent for change, and the Internet enables geometric change (3 times 6 times 9, etc.). An increasing rate of change means that a very few people can have an overly dramatic impact on their surroundings. These owners all overcame an incremental mental framework to create exponential value.
Finally, the owners leveraged their intellectual capital to a much higher degree than the competition. None of these owners work traditional hours now. That’s the counter-intuitive things about IC leverage…the ratio goes up the less you work (assuming the work result stays at least the same). This is the Midas mantra: the greater the IC leverage ratio, the higher the value of the company.
This last point is especially important. The vast majority of boomers are lifestyle owners. They started and continue to run their businesses in order to achieve comfortable lifestyles. Creating valuable entities never entered the discussion. But alas, the global economy and increasing age has gotten in the way. Now there’s not enough value in the businesses for many to retire. Something has to change. These under-water owners need to read the prior paragraphs.
So here’s my positive Aha! Midas Moment of 2011: We know how to create extreme value in a short period of time…every time…and in every industry. The only real constraint is the owner’s willingness to change.
Read MidasNotes for Rob’s views on marketing, operations, skill leverage and the legal and economic environments affecting private business. This past November the NY Times named Midas Notes the best newsletter in the U.S. on the topic of private business value creation; and further described Rob as the Chef Ramsey of private business. To receive MidasMoments, visit the registration page for complimentary registration to MidasNation.com. In addition to MidasMoments, you will receive invitations to Rob’s webinar series and gain access to recordings of previous webinars.
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Alan Adler is an executive coach, speaker & author.