The Third Dimension: Predictable Equity Value

Posted by George Sandmann on Sep 24, 2020 7:00:00 AM

OK, let’s explore the Third Dimension of Business Growth: creating Predictable Equity Value

Predictable equals high confidence. ‘Predictable Equity Value’ means you are highly confident about (1) past and future revenue, (2) the trading multiple you can demand, and (3) your ability to successfully monetize equity value. We’re adding the ‘monetize’ factor because if you can't monetize equity value it is useless.

Like First Dimension engagements, Third Dimension engagements are risk mitigation engagements - albeit for very different reasons. In Third Dimension engagements you are cementing value by driving high buyer confidence in the company’s ability to predictably deliver revenue and cash flow into the future.

How do you create this confidence? You’ll need to tell a great story, about scads of adoring customers, supported by credible financials, defended by barriers and without extra-operational risk.

Here are the Third Dimension ‘High Priority’ Growth and Equity Value Drivers:

  • Company Overview: Business Profile, documenting the company’s story
  • Financial: Audit, delivering highly credible financial reports
  • Legal: locking down customers, suppliers, employees and IP; no litigation (i.e. extra-operational risk)
  • Growth: document that you’re driving growth faster than the competition and the market
  • Market Share: show that you’re the big dog in your market and niche
  • Customer Diversification: you have many customers, with a mix of new and long-term; you loosing a few customers doesn’t create revenue risk
  • Barriers to Entry: you have a defensible market where competition is blocked using financial, legal and other means
  • Brand: deliver proof that the brand helps drive sales and marketing success, high margin, recurring revenues, and has stand-alone value

3 DoG all checkedLet’s look at these in the context of the first two dimensions. I’d argue that strength in the above is not required to create the First Dimension ‘Predictable Profit & Cash Flow’. Nor is it required for creating Second Dimension ‘Predictable Growth’.

Client company needs help

Typical clients think they have a bridge, but this is where they are...


By implementing the First Dimension of Growth you will have created a business that is generating Predictable Profits and Cash Flow - so you’re nailing that confidence thing. However, growing revenues and/or profits is not required to create Predictable Equity Value. The linchpin to equity value is highly credible financial reports, especially when favorably bench-marked against the competition and market. Earning a top multiple is also the result of running a low-risk company. Or put another way, a protected company - strong brand, loyal customers, barriers to entry, no litigation, etc.

The third factor in Predictable Equity Value is securing a buyer and closing the deal - aka converting equity into cash. Securing a Buyer: does the strategic plan, which you’ve been implementing over time, describe potential buyers; and have you helped design a company that will be attractive to these buyers? Closing the deal: keep in mind that time-to-market can make a significant difference in value. Get your timing right by studying boom and bust cycles, analyzing when there will be a frothy seller’s market. It’s a cycle thing… get your timing in sync with the market cycle.

Screenshot 2020-09-23 at 17.09.40

Working with you to strengthen the First and Second Dimensions completes the bridge...


And if you really nail executing your strategic growth plan by steadily growing profit at or above the market’s rate, you can generate strategic value. Strategic value is what CoreValue-powered companies like ProEx Physical Therapy experience, selling at 4X above the top industry multiple.

Do you want to know a secret, the icing on the cake? The CoreValue methodology, software and training helps you explain to your clients that you are uniquely armed and trained for working with them creating predictable profits and cash flow, and predictable growth, while also building predictable value. By hiring you, they are bringing expertise into the engagement that delivers additional ROI above and beyond the results delivered by others.

Here’s how it sounds: “Jane, there are several good firms available to you, and you should interview them. Here’s one thing to keep in mind: as you consider the best fit for you and you business, make sure that whoever you hire to help you reach your business goals also builds long-term equity value that can fund your family’s wealth goals. Our clients look to us for delivering a high ROI in both areas. We only work with companies where we know we can be successful delivering both growth and higher equity value, and we are willing to work with you.”

Screenshot 2020-09-23 at 17.10.43

Predictable Equity Value connects their life's work with their life's plan.


When can you work on the Third Dimension? Do you need to complete the First and/or Second Dimension first?

It depends. As in the physical world, ‘Time’ is the 4th Dimension.

If your client has a short horizon, aka “get me out now,” then prioritize projects using CoreValue Software’s recommendations. This is in all likelihood a pure risk mitigation engagement in which you’ll capture latent value, not create net-new value. Call us and we’ll walk you through how this works.

And where your client has a longer time horizon - 3 to 5 years - in which they want to maximize value, you have the opportunity to educate them about a holistic approach, progressing through the First and Second Dimensions as launchpads for value. They will end up with a strong, growing and valuable business that is immortal, transcending their career and continuing into the future, benefiting their employees and community for years to come. And all by hiring you.

Want to see for yourself why CoreValue drives thriving practices? Plans start at "Free": get CoreValue Starter

Next article: Client-facing Blog Article for you to download and use, talking about creating Predictable Profits and Cash Flow. Stay Tuned!

PS: Have you checked out our YouTube Channel? Lots of great videos, subscribe today to get all the updates.  

Topics: Business Consultant, Consulting Practice In a Box, 3 Dimensions of Business Growth

Share this article with a colleague: