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Increase Stakeholder Value By 20 Times — Inspire Confidence Through Your Vision

Entrepreneurs are rarely indifferent to how others value their businesses, but their reasons vary in why they care. For some, valuation is a primary goal. For others, it’s a scorecard delivering a sense of what progress has been made. Still others like that increasing enterprise value can help attract and retain talented people.

Despite such interest in a company’s value, many entrepreneurs fail to grasp valuation’s most important application: increasing interest from and credibility with potential customers. That’s a major mistake because developing this dimension of value is a prime mover of corporate viability and success. As Peter Drucker was fond of pointing out, “The purpose of a business is to create a customer.”

Before exploring how value affects critical customer dynamics, let’s briefly consider some ways that companies are valued.

Financial experts often define a business’s value by its current and future cash flows. Some investment analysts may place more emphasis on a firm’s business model and how well the company performs versus competitors. Venture capitalists look at metrics intended to predict performance and future salability. Partners who are seeking long-term value-improving relationships often pay most attention to the talent and character of the management team.

Regardless of the method used, anyone assigning values must rely heavily on the present and past to estimate the business’s future. Anything other than complete credibility and smoothly-rising performance will cause at least some people to reduce their valuations. As you might expect, combining perfect credibility with smooth performance is unusual in newer businesses.

Valuation-makers accept that business difficulties will arise, and virtually all of them believe that timely, appropriate responses by entrepreneurs can make a big difference. As a result, premium values are assigned to assets, ownership in a business, a business itself, or an entire company led by those who they regard as outstanding managers.

What do valuation-makers see as the marks of an outstanding manager? Unfortunately, it’s usually quite different from what entrepreneurs are trying to accomplish. In particular, entrepreneurs often make mistakes by displaying the wrong kind of confidence and sharing visions for their enterprises that don’t show enough of a practical bent.

What does it mean to have the wrong kind of confidence? Entrepreneurs rarely lack having enough confidence in their companies and themselves. However, too much confidence can lead to not capitalizing on important opportunities, paying too little attention to dangerous problems, and making a bad impression on stakeholders.

When such management flaws become obvious to current and potential customers, they often look elsewhere to meet their needs . . . wisely choosing to avoid relying on a company led by overconfident management that seems headed for a crash.

Even if a supplier crisis doesn’t seem imminent, discomfort with differences in perspective can lead to delayed purchasing. While an entrepreneur might look at the current organization and see a future powerhouse, the potential customer might only notice today’s inadequate resources, weak systems, inexperience, and excess egos. In such cases, any prudent potential customer will find it easiest to wait and see how an organization does for a few years before finally testing the waters with small purchases.

Even for entrepreneurs who are doing the right things, reducing the gap between the two perceptions is essential for the entrepreneur’s vision to be realized. Enhancing confidence in management is a good way to start increasing the willingness of potential customers to buy from the new company.

How can more potential customers gain such confidence? While an entrepreneur sharing the company’s vision in credible ways is necessary, building credibility often has to come first.

Here are seven credibility-enhancing practices for entrepreneurs to follow:

1. Promise less than what you reasonably expect to accomplish and produce more than you promised.

2. In explaining what you intend to do and have done, be candid, open, and honest about any problems and how they have been and are being addressed.

3. When common sense indicates doing something other than what you plan, carefully explain the facts that support your decision and be open to arguments others make.

4. If you perceive that someone misunderstands what your situation is or your plans are, take that person aside privately to correct the misperception.

5. Be available to those who want to know more about how you are doing.

6. Routinely describe progress in meeting your promises.

7. Before being asked to do so, admit to and apologize for any mistakes or delays that have occurred.

After establishing credibility through these practices, entrepreneurs can expect that potential customers will want to hear their visions for what the company intends to become. When such a vision is appropriate and credible, entrepreneurs can expect to add customers faster.

Unfortunately, many otherwise-credible entrepreneurs fail to present an appealing vision to potential customers. More often, entrepreneurs present some “pie in the sky” that makes the entrepreneur look like a dewy-eyed dreamer, rather than some “bird in the hand” that will soon add value for customers.

Lest you think I’m telling you to have different visions for various audiences, let me be clear that’s not the case. Instead, focus potential customers on the aspects of your vision that are most interesting for and useful to them: Explain how the vision helps them now, when in the near term they will gain new benefits, and why they should believe you will deliver on your vision.

As you describe the vision, potential customers should be seeing themselves being more successful in their jobs and careers because their organizations are also prospering. While I could give you plenty of lists to help you make such an impression, I think an example would be more useful.

To do so, I would like to introduce you to some of the vision-sharing methods applied by Professor Banja Junhasavasdikul, Ph.D. of Chulalongkorn University, holder of a doctorate in technology management from Rushmore University.

Professor Junhasavasdikul is also known around the world as the founder and CEO of Innovation Group, one of Thailand’s most successful and vibrant business organizations. Before starting the group, he built valuable credibility through his studies, which included earning a Bachelor of Science in chemistry from Chulalongkorn University, a Master of Arts in organic chemistry from the University of Texas, and an executive MBA from Thammasart University.

Not satisfied with gaining a fine education, he also sought world-class work experiences to learn how to accomplish superior results for customers. To do so, he held positions at Shell (Thailand) and DuPont for over a decade, gaining useful knowledge about developing high-performance polymer-based products.

At this point, Professor Junhasavasdikul was ready to put down his entrepreneurial roots. In doing so, he began with only three employees.

How could such a tiny company possibly be credible to potential customers? One helpful step was to focus initially on marketing high-performance organic products provided by well-regarded global firms such as DuPont. By drawing on the rich intellectual and technical roots of these supplier companies, Innovation Group was immediately seen as a firm to be taken seriously.

Although its technical capabilities were initially limited in size, the firm has always sought to develop and apply competence that was highly valuable to its customers. Here is one of my favorite quotes from Professor Junhasavasdikul in this regard:

“The successful innovative company must have a long-term vision and research on the megatrends of the industry that it serves. It must bring the future requirements of industry into the organization’s development cycle. To commercialize products discovered from the research, the business development team must be able to sell the value-innovation to meet customers’ demands.”

As you can see from this quote, he has used the Innovation Group’s vision in part to help current and potential customers (the entire industry) to see what was coming next and what the most promising technical directions were at the time. Who wouldn’t want to listen to him expound on such a valuable vision? It’s all about the customer!

A potential customer would eventually be interested in how Innovation Group might be able to help. For anyone who cared to listen, Professor Junhasavasdikul would explain his vision for how to develop the culture and competencies that would cause his tiny firm to become a world innovation leader. If you would like to learn more about that vision, I recommend the section of his book “Winning with Technology” (2011) that addresses Corporate Competency.

How did it go?

Today, Innovation Group has over 1,200 employees, operates several trading companies, two rubber compounding factories, one finished-products factory, and two research-and-development centers. The company’s expertise is in great demand from the world’s leading companies for accessing the best high-performance polymer technology.

In the future, the number of factories will undoubtedly grow and its global footprint will expand following its success in practically applying firm’s continually increasing technical capabilities. Why would anyone doubt such a track record of successfully delivering on a vision for over two decades? I doubt if anyone does.

Has the value of this organization grown for its stakeholders? You bet it has!

Just from looking at the employment, this is a firm that’s grown by more than 40 times and continues to expand at a rapid rate . . . clearly demonstrating that you can increase stakeholder value by more than 20 times through inspiring confidence in the right ways through your vision.

Remember that Innovation Group’s success was enhanced by building the right credibility and working from a vision that put potential customers in its center in such a way that they couldn’t fail to be interested and attracted. I’m sure that those who became Innovation Group’s customers before their competitors are glad that they did.

How do you need to build your organization’s credibility and vision to add value by 20 times?

What are you waiting for?

Donald W. Mitchell is a professor at Rushmore University who often teaches people who want to improve their business effectiveness in order to accomplish career breakthroughs through earning advanced degrees. For more information about ways to engage in fruitful lifelong learning at Rushmore University to increase your effectiveness, I invite you to visit

http://www.rushmore.edu

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