February 2021 Volume 3

OPERATIONS & MANAGEMENT

What is Your Real Job as CEO? By Joel Strom

The answer is simple, your real job as CEO is to maximize your enterprise value. In fact, you should think of yourself as the CVO or Chief Value Officer. So, if that is your job, your success depends on your understanding of what drives business value. I recently wrote a new book. It is entitled “CEO to CVO; Moving Your Company from Ordinary to Extraordinary” (Soon to be released by Jones Media Publishing).The book is about how as CEO you can successfully take on the role of the CVO and build a great company.That’s because the source of great value is a great company. A great company is a sustainable, exciting, innovative, fun, valuable company. A company that provides you with the rewards you have worked for and deserve. It’s a “Gotta Have” company. I will be using the contents of my book as the basis for this and future FIAMagazine columns. It’s All About Strategic Value A concept and process that can help any CVOcreate a great, valuable company is Strategic Value and its Four Pillars. Strategic Value is based on reality .The reality that there’s muchmore that determines a company’s value than simply a mathematical calculation involving EBITDA, sales, or profits. A company’s Strategic Value is created by the same factors that contribute to creating a great company. Strategic Value simply provides a concept and a tool to measure it and accomplish it. Don’t overthink it. The Strategic Value concept is straightforward and logical. There are Four Pillars that support your company’s Strategic Value: Financial, Strategic, Operational, and Industry. Within each of those pillars, there are various components that, depending on their strength, can create or reduce your Strategic Value. In the book and in these columns, I will define each of the pillars and the components within them. Then discuss the process that you can use to accelerate your Strategic Value. As you maximize Strategic Value and build a great company, you will accomplish much more than simply maximizing your eventual sale price. You will also achieve higher profitability, more owner options, and value insurance. These other benefits confirm the truth that it’s always the right time to be accelerating your company’s Strategic Value . Creating a “Gotta Have” I use the term a “Gotta Have” business. This label refers to a business that has maximized its Strategic Value to become a business everyone wants. It’s where you want to be, even if you’re not looking to sell. Being a “Gotta Have” says that you are one of the best. Then, when you are ready to sell, your “Gotta Have” business stands

out from the rest of the crowd and can truly increase the sale price beyond your expectations. A Great Story with a Very Happy Ending This is a good time to tell a story. It’s a story with a very happy ending. Many people became very wealthy. It’s also the story that brought the concept of Strategic Value, the CVO, and the “Gotta Have” business into perspective for me. When we first started working with Waterborne Industries (name changed to protect privacy), my firm provided what we referred to as Growth Management advisory services. Growth Management was a method of helping companies successfully grow from smaller entrepreneurial businesses to what we referred to as “real” businesses. Most of our clients weren’t struggling with getting sales. In fact, it was just the opposite. They were struggling to manage the growth created by those sales. Some were on the verge of growing themselves out of business. We focused on what we termed “infrastructure gaps” caused by growing sales faster than the company could support them. We helped our clients identify symptoms of support gaps, find the root cause, and fix them. Then we would work with them to develop plans to avoid future infrastructure support gaps. Waterborne was a fast-growing company and they were beginning to encounter support gap symptoms. It was a family-owned business. They had set a goal; grow from their current $15 million revenue to $100million annual revenue in ten years, and then sell the company. The founder/CEO admitted something few others do. He understood that he didn’t have the desire or skill to lead their company to their goal, so they brought in an outside CEO to lead the company. We worked with them until they were just short of their $100 million revenue goal. Larger companies in their industry took notice. They had been watching this company’s success, and just shy of their ten-year timeframe, they started making offers to purchase the company. After several offers and counter offers from numerous companies, it was sold. Ownership had their choice of buyers and sold the company to one of them for nearly doubled what was the rule-of-thumb valuation for their industry. It was then that I realized that rule-of-thumb valuations can be more than just nudged higher, they can be totally thrown out. If the company is a “Gotta Have” business, the value will be based on much more than simply current profitability. In this case, the eventual buyer and the other bidders knew that this wasn’t just another acquisition. They knew that they would not only get nice annual profits, but a great company that would provide them a competitive advantage. They saw a company that they had to have at nearly any price. It was truly a “Gotta Have”.

FIA MAGAZINE | FEBRUARY 2021 62