Value Maps

Praise for VALUE MAPS "Equivocator, Explorer, Experimenter, Exploiter, Extender—Chapter 12 might be well served as mandatory reading for all subject matter experts! SPARC is not a valuation, per se, but rather a separate consulting engagement that might interest a client—especially if that client is preparing for a sale or planning an exit strategy. Miller has taken the good ideas from five disciplines and married them with value enhancement, creating what could become a very good 'add-on' consulting engagement. NACVA recommends, and looks forward to, further dialogue related to this new approach. This book will open your eyes to new opportunities." —Parnell Black, MBA, CPA, CVA, Chief Executive Officer, National Association of Certified Valuation Analysts (NACVA) "No one illuminates the murky intersection where business strategy and private company value creation meet better than Warren Miller. Now he's focused his extensive professional training and real-world experience to produce this intellectually rich, yet down-to-earth and fun-to-read road map we can all use. Business owners and leaders, financial analysts, management consultants, wealth managers, CPAs, business brokers, private equity investors, business appraisers—no one should plan to increase the value of an enterprise without Value Maps in their passenger seat." —David Foster, CEO, Business Valuation Resources "Private-equity analysts do not often come across scholarly and technical professional reading laced with laugh-out-loud moments! Yet this is exactly what one finds in Value Maps. Warren Miller's advice stems from his career as a finance executive, a CPA, a valuation analyst, and a 'recovering academic.' With pitch-perfect balance, Warren has created both a must-have professional reference guide and a best-practices road map designed to enhance the profitability of your client's business and your own—all in a very readable style with just a 'spoon-full of sugar.' Enjoy the read!" —Gary M. Karlitz, ASA, CPA, Partner-in-Charge, Valuation Services, Forensic Services, and Forensic Accounting, Citrin Cooperman & Company, LLP "Extremely readable, with numerous real-world examples—valuation specialists who don't read this book will soon be looking for a new profession. Miller takes the term 'valuation' to new levels, suggesting that appraisers can indeed add real value to their clients' businesses. Clients should demand that a valuation professional read this book before he or she will be hired." —Alfred M. King, Vice Chairman, Marshall & Stevens, Inc.

Preface xiii Acknowledgements xix About the Web Site xxiii List of Acronyms xxv Part I Cornerstones 1 Chapter I Why a New Approach Is Needed 3 Valuation as Craft 5 The State of Our Craft 6 Cause and Effect: What and Why 7 Multidisciplinary Tools for Analyzing Value Creation 8 Parameters of Valuation 10 What We Know about Risk 11 Components of Risk 12 A Framework for Unsystematic Risk 13 Unlocking Business Wealth 16 Summary 17 Additional Reading 17 Chapter 2 Tools from Strategic Management 19 History 19 Perspective 22 Valuation Tools 22 Strategic Intent 23 Generic Competitive Strategies 26 Resources 29 Competitive Analysis 32 Distinctive versus Sustained Competitive Advantage 34 VRIO 37 Customer Satisfaction Surveys 38 Diversification 39 Unlocking Business Wealth 42 Summary 43 Additional Reading 43 Chapter 3 Tools from Industrial Organization 45 Perspective 46 Tenets 47 Tools 49 Unlocking Business Wealth 62 Summary 62 Additional Reading 63 Chapter 4 Tools from Organization Theory 65 Perspective 68 Tenets 70 Tools 70 Unlocking Business Wealth 82 Summary 82 Additional Reading 83 Chapter 5 Tools from Evolutionary Economics 85 Perspective 88 Tenets 89 Tools 89 Unlocking Business Wealth 103 Summary 103 Additional Reading 104 Chapter 6 Tools from Austrian Economics 105 Perspective 110 Tenets 112 Tools 113 Unlocking Business Wealth 123 Summary 123 Recommended Reading 124 Part II Pouring the Foundation 127 Chapter 7 The Straight Scoop on Value Drivers 129 Definition 129 Value Drivers versus Balanced Scorecards 131 Why Value Drivers Matter 132 The Regenerative Power of Capitalism 134 Assessing Durability 138 Summary 139 Additional Reading 140 Chapter 8 The “OT” in SWOT Analysis: The Macroenvironment 141 Defining the Domain 141 Unit of Analysis 144 Trilevel Unsystematic Risk Framework 145 History and Background 146 Why Does the Macroenvironment Matter? 147 The Forces 148 Summary 153 Additional Reading 154 Chapter 9 The “OT” in SWOT Analysis: The Domain 155 The Roots of Domain Analysis 155 Oligopolies Large and Small 155 Price Competition in an Oligopoly 158 Published Industry Risk Premiums 158 The Domain 161 Summary 165 Additional Reading 166 Appendix 9A: Competitive Analysis and Estimating Market Share 167 Chapter 10 Getting to “Why”: Analyses, Composites, and On-Site Interviews 171 Financial Ratios 171 A Key Metric 172 Finding Sector-Specific Metrics 173 The Analysis 173 How to Construct a Composite 175 Prepping for the On-Site Interviews 175 Conducting the On-Site Interviews 177 Summary 180 Chapter 11 The “SW” in SWOT Analysis: The Company and SPARC 183 Cause-and-Effect Relationships 186 Value Drivers and Value Destroyers 190 Assessing Durability of Advantage 202 Back to VRIO 202 Summary 204 Appendix 11A: Bringing It All Together: Quantifying Unsystematic Risk 205 Chapter 12 SPARC Archetypes among Small and Medium-Sized Enterprises 207 Exploiter and Extender 208 Explorer and Experimenter 210 Equivocator 213 Summary 214 Part III Tales from the Firing Line 217 Chapter 13 Construction and Manufacturing 219 Construction 220 Specialty Publishing I 223 Specialty Publishing II 226 Specialty Manufacturing 228 Packaging 232 Chapter 14 Business to Business 237 Safety Equipment/Supplies 237 Industrial Supply 240 Construction Materials 244 Antique Building Materials Reclamation 249 Chapter 15 Transportation 255 Transportation Collection Services 255 LTL Trucking 258 Freight Forwarding 264 Chapter 16 Specialty Retailing 269 Jewelry I 269 Jewelry II 273 Building Materials 276 Pharmacy 277 Chapter 17 Services 281 Outplacement Services 281 Executive Search 283 Private Equity 285 Investment Banking 287 Dental Lab 289 Quick-Lube Services 291 Part IV Practice Management 297 Chapter 18 The Engagement Process 299 When Can an Engagement Include a Value Map? 299 Finding Good Clients 300 Avoiding Problem Clients 301 Marketing and Selling the Work 302 The “Shake-’n’-Howdy” Visit 303 Pricing the Engagement 304 Engagement Letter 1 305 Highlights of Engagement Letter 1 306 Managing Expectations 307 Engagement Letter 2 309 Summary 311 Chapter 19 Working with Clients 313 A Few Words about Family Systems 313 Processes 315 How Not to Do It 315 How (Else) Not to Do It 317 Start at the Beginning 317 Think like a Buyer 318 Planning the Engagement 319 As the Process Unfolds 321 Winding Up the Value-Mapping Process 322 Summary 323 Additional Reading 323 Chapter 20 IFRS, IVSC, and Value Maps 325 The Valuation Process Outside the United States 326 The Cost of Capital Outside the United States 326 Gathering Data Outside the United States 327 Summary 332 Chapter 21 Epilogue: The Future for Value-Mapping Services 333 The Future for Valuation Services 333 Marketing Matters 335 That Special Cadre Dedicated to Delivering Value to Clients 340 Closing Words 342 Bibliography 345 Index 351