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How to Maximize Shareholder Value and other goal statements

by on October 13, 2015

Tough DecisionsIf you’re the CEO have you ever stated that your goals are to do one of the following or have you heard your CEO say that the goals of the company are one of the following?

  1. Maximize Shareholder Value
  2. Create a strong competitive advantage

These are typical goal statements of many a CEO.  They certainly sound important and no one can really argue with them. However, one might be able to argue with the specific actions that should represent the definition of maximizing shareholder value or creating a strong competitive advantage.

But how will one know if you have it?

What steps should you take to accomplish these goals?  Should you tell people what to do?  Should you organize a course and have them attend?  Should you establish rules, invent forms, punish offenders, praise the good?

The Key Question

The key question is “Exactly what should we do to accomplish our important goals?”

The answer is “There is no way to decide what action to take until we know what we are trying to accomplish.”

Too often, people would rather do something than think about the purpose of the doing.  Action is easy.  What isn’t so easy is relating actions to outcomes.  What isn’t easy is purposeful activity, activity that will get you where you want to go.

Sometimes the action is obvious, like you want to play the piano you need instruction in the skills and practice of the piano. But sometimes, like the two goals stated at the beginning, the connection between the intention and the actions needed to get the results aren’t so clear.

Performances Define the Goal

The problem is that these statements are abstract and do not suggest the means of their achievement.  The CEO should be able to describe the performances that represent the meaning of the goal.  In other words, be able to describe specific outcomes that, if achieved, will cause you to agree that the goal is achieved.

Once you know the performances that collectively define the goal, you will be in a better position to decide which of these performances need to be taught and which need to managed.  Then you can select the most appropriate teaching or management procedures and arrange to measure your progress toward success.

For instance, the above stated goals need to be more fully developed to make them a part of any strategic plan.  Let’s start with #1 – Maximizing Shareholder Value.

This statement means something different to every company and every shareholder. It may mean a 10x return on an investment in 3-5 years.  It may mean an IPO within 10 years.  It may mean getting $0.50 on the dollar for the assets of a company going out of business.

Instead of telling everyone your goal is to maximize shareholder value, tell your goals in terms of something that everyone will know when they see it.  They may be measured in one or more of the following:

  • X% increase in annual revenues
  • Increased earnings/share
  • Increased profit margin

It’s okay if these goals change over time.  They evolve as the company evolves.

Let’s try the next goal, “To create a strong competitive advantage.”

First, the word “create” describes a process, not an outcome.  It should be restated as “having a strong competitive advantage.”  Once we know what we’re trying to attain, then we can determine the best means of getting there.

Second, how would you know if you have a strong competitive advantage?  You might have patents or you might be a first mover.  You might win technological bake-offs.  Whatever it is, there are tangible behaviors that indicate whether or not there is a competitive advantage.

Third, how would you know if the competitive advantage is “strong“? Are you able to win patent infringement suits?  This may be a matter of money or capital and not just the strength of any patent.  Are you able to license the technology to others?  Is strength merely another word for time advantage, and is that 1 year or 3 years?

Other Examples

We use phrases like these in business all the time. Here are some examples:

  • Develop empowered employees
  • Better flow of information
  • Profit-oriented sales behavior
  • Cooperative leadership

Each of these goals is different but each goal needs to be stated clearly because it is the doing that causes us to agree or disagree on whether or not the goal is achieved.  It is the doing that matters most.  If you can figure out how to get people to do the things that represent the definition of a goal, you will be in a much better position to achieve that goal.

Once you figure out what those “say and do” things are, you will find it much easier to figure out how to get them to happen.

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.  http://www.therevenuegroup.net/free-offer.html

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From → Strategy

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