"EVE" = Equity Value Enhancement. Folks smarter than I defied conventional wisdom and supersized their companies and their brand. EVE is about what they did:
1) Leveraged human capital;
2) Mastered risk; and
3) Ensured every $ spent was leveraged.
Say, a very successful business owner works 60 hours weekly and receives $15 million in annual compensation equating to $5,000 hourly. You have two ways to be a hero if you're trying to win this prospect's business. You can save the client time. How much would you pay if someone saved you 100 hours annually (in this example $500,000)? The other is: Can you provide 10x or more for every dollar in fees or commissions?
As a "Strategic Value Architect", I see these pervasive opportunities and endeavor to work with owners and advisors to be value stewards for their very best clients. I'll use a CPA as an example. If most CPAs are tasked to keep taxes to a minimum then how do they add value?
What if the owners had funded their buy-sell agreement with life insurance? What if the CPA and owner discussed how the owners used their time? What if new equipment produced twice the widgets in half the time at their company? What if the building's depreciation was accelerated by applying cost segregation? What if company debt and line of credit were better managed? What if bylaws were updated?
Owners and advisors alike often assume value is derived from levels of revenues and profits. That's only half the equation. The other is the level of risk and human capital leverage. Assume a debt free company had $5 million in profits (free cash flow) and as historically operated was given a 5x price multiple (the multiple reflects risk and opportunity on a going forward basis). This provides a $25 million value.
Now assume the CPA's involvement results in $6 million in profits even with new debt (and interest payments) to acquire equipment; the bylaws are updated; life insurance is purchased; and, the owner now works "on" versus "in" the business. The price multiple increases to 8.5x and equity value is now $51 million - $26 million in "new" added value.
Let's say to achieve this the CPA and other advisor commissions and fees were $260,000. BAM!!! That is a 100:1 return on investment!
So, you have two choices: Business as usual (See Einstein's definition of insanity above. How's that working for you?). Or like Jeff, Mark, Chuck and Oprah who have a copy of EVE (it's true), you apply these and hundreds of knowledge nuggets in a #1 rated Amazon book - EVE.
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