What Business Are We In?
More Than Just Valuation: How to Seize Opportunities by Getting Out of Your Comfort Zone
Itâ€™s a trap to define yourself as a valuator, rather than someone in the â€śproblem-solvingâ€ť business. Rand Curtiss explains why.
The vast majority of business appraisers came to our profession after experience in other vocations. We came to valuation and stayed because we like the work and can make a living at it.
There is, however, a trap that we can fall into: defining ourselves and our capabilities too narrowly with the termâ€•business appraiser. That describes our skill set, but does not do justice to what we can do with it to help our clients.Â
One of the most inspiring articles I have ever read was â€śMarketing Myopiaâ€ť by Professor Theodore Levitt of the Harvard Business School. You can Google it. Levittâ€™s thesis was that those who define their businesses too narrowly will miss strategic opportunities. His classic example: a century ago, the great railroads, declined to invest in the startup automobile industry. Had the rail companies considered themselves to be in the transportation business, they might have invested in car companies and done well. (The DuPont Chemical family did and prospered.)
For us, the trap is defining ourselves to be in the valuation, not the problem solving, business. All valuations are only first steps, not solutions, for clients. Valuations precede, but do not constitute, actions. Tax valuations support filings of tax returns, expert reports support litigation, and so forth.
Consider some of the powerful, natural forces that cause us to suffer from marketing myopia as â€śbusiness appraisersâ€ť:
- The constant need to invest time, money, and energy to achieve competency, get certified, and stay abreast of changes in financial theory, market conditions, the law, and many other relevant subjects.
- The cornucopia of superb articles, courses, books, training courses and information available from our professional societies and other sources.
- The natural tendency of our clients and their advisors to pigeonhole us as appraisal specialists.
- The press of everyday workâ€”when we are backlogged, we naturally focus on getting the work out, not on the bigger picture.Â
- Our natural reluctance to venture into areas outside our core valuation competency, and the strictures imposed on us by professional standards.
- The comfort of staying in our well-defined niche.
- The fear of perception as jack of all trades, master of none.
A recent case highlighted the trap for me. My American Business Appraisers National Network colleague Dennis Webb and I were approached to value a very small business, a chain of dance studios grossing a combined $100,000, owned equally by Mom and daughter, who were not getting along. Daughter wanted to buy Mom out, but both had highly unrealistic opinions of the value of the business. They were prepared to spend thousands of dollars for us to appraise it.
We suggested a simpler and obvious solution: divide the studios equally between them. They had not thought of this, and were greatly relieved by and pleased with this easy step.
Could we have acted purely as appraisers, gone ahead with the appraisal, earned our fee, and let the chips fall (i.e. a possible legal battle)? Certainly. But Dennis and I had no desire to do that. We wanted to find the best solution for our clients, regardless of whether it required our appraisal services, and that solution became obvious when we defined ourselves as problem solvers.
Did we violate any professional standards by doing this? Of course not: we did no appraising!
Did we err in any way? No! We did the right thing for our clients, as we saw it. Moreover, they and we felt great about it. Did we sacrifice a lucrative fee? Certainly, but by doing the right thing and focusing on solving the clientâ€™s real problem (eliminating the cause of disagreement, not determining the value of the business), we gained two new fans who may well refer us to other clients who really need our appraisal services.
In other cases, of course, the solutions might not be so simple. Tax, legal, and even psychological considerations may be relevant and conflicting, and they require the advice of appropriate professionals. But that does not stop us from making general problem-solving suggestions!
Employee Stock Ownership Programs (ESOPs) are a great example of complex situations in which appraisals may not be part of the best client solution. ESOP valuations are challenging on their own merits, and offer the attractive benefit of guaranteed repeat business for statutory annual updates. Their economics are also very attractive to company owners. Notwithstanding that, however, I always explore with clients and their advisors whether (1) they understand all the costs of establishing and administering anESOP, such as the regulatory risk and the problems that can arise when employees become co-shareholders with owner-managers; and (2) whether other alternatives, including an outright sale of the company, adoption of a bonus plan, etc. might be more appropriate. Am I fully qualified to advise them on these choices? Of course not: I am not an attorney, a CPA, an Employment Retirement Income Security Act (ERISA) specialist, or a fiduciary. But I have worked with over 100 companies that considered and/or adopted ESOPs. Because of that, I know that my experience will be relevant and valuable, along with the advice of other professionals.
The moral of the story is simple: consider yourself to be in the problem-solving business, not the appraisal business. Our valuation skills and other experiences allow us to take a broad view of our clientsâ€™ situations, and sometimes they will be better off with a non-appraisal related solution. In the short run, we may forgo a fee, but in the long run, the increase in our stature, reputation, credibility, and wisdom will do more for our earning power than a few engagement fees. Donâ€™t sell yourself short: you have a lot more to offer than just value opinions.
If you have been valuing businesses for awhile, you probably experienced growing demand in the 1990s followed by declines after the 2001 recession, the stock market crash, and 9/11. Pure valuation work, like most other businesses, has its cycles, and the best antidote to that is to offer a broader range of services.
To close with a reference back to Professor Levittâ€™s thesis, the next time a client or referrer calls, think first about what the real problem is and what the best (or alternative) solutions might be. Do that repeatedly and you will become a wiser and more successful problem solver, which is the business we are all in.
Rand M. Curtiss, MCBA, FIBA, ASA, ASA, is the President of Loveman-Curtiss, a business appraisal firm located in Shaker Heights, Ohio.