Ep. 145: Claire Chandler - Calculating Business Value

Contact Claire Chandler:
https://www.linkedin.com/in/clairechandlersphr/


Claire's Website:
https://www.clairechandler.net/


Talent Boost:
https://www.talentboost.net/checklist


FULL EPISODE TRANSCRIPTMitch:
(00:05)
 Welcome back to Count Me In, IMA's podcast about all things
affecting the accounting and finance world. This is your host
Mitch Roshong and I would like to say thank you for coming back
and listening to another episode of our series. The guest speaker
for episode 145 here today is Claire Chandler an acquisition,
integration, and onboarding specialist. Claire is a corporate
survivor who draws upon almost 30 years of business leadership
and consulting experience. One of her specialties is business
value creation. In this conversation, you will hear her discuss
what finance and accounting quite often get wrong when
calculating business value. Keep listening as you will now hear
from Claire Chandler with Adam Larson.
 
 Adam: (00:55)
 So Claire, according to stockanalysis.com, I was reading
that there have been over around 703 IPOs in the US stock market
in 2021 as of around mid August, which is when we're recording
this, which is 331% more than the same time in 2020. So needless
to say, there's been a lot of business valuation happening as
companies seek to grow and expand. So as we start off our
conversation, can we talk about what drives the value of
business?
 
 Claire: (01:23)
 Yes, please. Yeah. What a great question to open up with,
right. So, you know, back in the day we lived in an industrial
economy, I think a lot of people make the mistake of thinking we
are still there. and back when we were more industrial close to a
hundred percent, about 95% of the value of a business, any
business was driven by tangible assets, right? So things like a
company's technology, the products that it made and sold, their
operations and of course their financial capital, but we don't
live in an industrial economy anymore. We actually live in an
intellectual economy. That economy is dependent primarily on the
output of a human mind. And I know that sounds bizarre when I say
it out loud, but think about it. We're really driven by
intangible assets companies, brand its services, more so than its
products, the intellectual property, that the knowledge in the
heads of the human capital, right? And so with this shift that
has happened gradually, but we are fully ensconced in an
intellectual economy. That shift also, changed what drives
business value. So before it was almost entirely driven by
tangible assets today, it's well over 72% driven by the
intangibles. And we're seeing this across every industry - in
some industries, if you look at say tech and pharma, they're
close to a hundred percent driven by intangible assets, right.
The products of the human mind. and so it's really critical that
businesses pay attention to that.
 
 Adam: (03:04)
 And then on top of that, you not only are you having to
worry about the numbers and the financials, you have to start
worrying about, things like ESG and sustainability are becoming
more and more essential that you have to report, not only the
mind, but also how, how is my business affecting the
environment?
 
 Claire: (03:20)
 Yeah, and it's, and it's interesting to that point, the
markets have shifted in that way as well, right? The SEC has
become more stringent and, has raised its expectations on what
companies do, not only in the sustainability space, but also in
terms of how people are treating and nurturing the human capital.
So the markets have shifted, the economy obviously has shifted
and, you know, the, the more successful businesses have embraced
this and sort of incorporated that into their business
strategy.
 
 Adam: (03:51)
 So as we're thinking about businesses and, getting
investors and growing IPOs, the other thing I was reading, I saw
an article on Fortune the other day, it was saying that there's
been over $2 billion of mergers and acquisitions activity in just
2021. I think that was through July, like the beginning of July.
We're now like to mid August, you know, how can investors reduce
the risk of investing in the wrong company, especially with so
many different factors that we were just talking about.
 
 Claire: (04:17)
 Yeah, it's, it's a huge question. Obviously, the bottom
line is investors want to make their money back, in multiples,
right? And so the way that to reduce the risks starts with their
value creation plan hypothesis. They need to be crystal clear on
their end goal, right? The clearer they are on what they want to
get out of that portfolio company on the back end, whether it's a
holding period of three years, five years, you know, even longer
the clearer they are on that going in, the easier it is on the
front end to make sure that the company they're evaluating
actually has the capacity and the capability to deliver that
return for them. Because obviously that is the goal, whatever
form it takes, that investor wants to get the most bang for their
buck. So they've got to be really, really clear on the hypothesis
going in on what they expect to get out of their VCP.
 
 Adam: (05:09)
 So then on the other side, what about what should companies
be doing to, to attract the right funding? You know, cause you
got to think about their side too.
 
 Claire: (05:16)
 Yeah, absolutely. And it's, and it's all about the right
funding, right? To your point. And it's a similar process for
companies on that, on that side that are looking to grow through
the backing of the right investors. So they need to be really
clear on their end goal as well. And it's probably not as far out
for them, it may not be five or 10 years. It may be, you know, 12
months to 36 months, but they need to deeply understand where
they want to take their business and how ready they are to grow
in that direction with, or without funding. Right. So, and I say
that to really make this point, a lot of startups make this fatal
mistake of believing that money is going to solve everything
right. We get to the next level. If only we have the financial
capital and that's totally false, they really need to evaluate
their capacity and capability just like the investor is going to
do. Before that investor comes in and does that for them and
finds that they're not really ready to grow and scale. So it's
not just about getting investment. It's about understanding why
you need that investment. Are you ready to take that investment
and who is the right source of that funding?
 
 Adam: (06:23)
 Yeah. Because somebody could come to your startup and say,
we're going to give you $2 billion, but if you're not ready to
grow, then that $2 billion would just kind of go to waste.
 
 Claire: (06:32)
 It's going to be a wasted bet on, and both sides are going
to be complete failures in that regard, right. Especially if
you're talking about an investment to the tune of, you know, a
billion dollars or more an investor is not going to do that on a
wish and a prayer, they really do need to be very, very thorough
in vetting the company they're about to put their money behind.
And the company itself has to be really self-aware and
disciplined before they take on that level of funding.
 
 Adam: (07:00)
 So I can imagine that there's going to be mergers and
acquisitions that aren't successful. We can, you can read about
the famous ones when, I forget which company bought AOL, you
know, no one really knows what AOL is anymore. You kn...