1839 – Unlocking Corporate Value with Ken Sanginario

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2:14With us right now, Ken Sanginario. Ken, you are a value creator. You are the founder of Corporate Value Metrics. You're found on the web at corporatevalue.net. Ken, thank you so much for joining us. Thanks, Josh. Glad to be here. Well, there are a lot of ways that we can think of what is value. And then, of course, we pair that with corporate value. Well, what are we talking about? We're talking about primarily private companies, private business enterprises, primarily in the U.S., lower middle market, typically$5 million to$100 million in revenue, which makes up a big piece of the U.S. economy.

2:57And I'll give you a couple of statistics. I mean, roughly 70 % of all of those companies in the U.S. are baby boomer owned, and they'll have to transfer ownership of their companies, whether they like it or not, sometime over the next 10 years. And most of those companies are not prepared for that eventuality. The statistics are not in their favor. Roughly about 85 to 90 % of companies that try to go to market and transfer ownership, whether they're selling to their management teams, to the next generation, to outside strategics or private equity firms, whatever the case may be, about 85 to 90 % of those companies are not sellable.

3:42And so the companies that do transact, which is only about maybe 10 or 12 percent in total, half of those transact by granting concessions, major concessions at the negotiating table. And only a small fraction, about 6 percent of all the companies that go to market, actually transfer ownership on timing and terms that are appealing to them that they desired at the outset of the process. So the whole concept of value growth is designed to help those private companies first become aware and then become capable of increasing the quality and the value of their businesses. So when that eventuality comes and they need to transfer ownership, they will be ready for it and they'll be able to transact at a much higher value with a much higher rate of success.

4:37So that's kind of what value growth is all about. It's a huge market need in the U.S. economy, especially around the world as well. But we focus on the U.S. economy and and not many people understand it or how to how to fill that need. So that's what we're all about. Yeah. You know, I wonder, I mean, you know, I just think about everything that we put, our blood, sweat and tears, especially we're talking to owners right now, founders, how much effort we put in, particularly in the early days. And, you know, without the proper, you know, just a little bit of extra diligence during the process and throughout the process, and certainly as we get to different stages of business, what a huge missed opportunity.

5:28if we're not kind of focused on, look, it might be out of, you know, out of our, you know, earshot or whatever to, you know, kind of think about, you know, what life is going to be like 10, 15 years from now, if that's the case. And we're, you know, solving immediate problems. We think that we're doing the right thing. But Ken, it's more than that. Can we maybe think about some of those things that in a perfect world, a founder would be doing right from early stage so that they can kind of keep this focus on exit, transition, legacy, you know, kind of the next phase or generation that outlives the founder, you know, at their level of involvement?

6:10Because it can look a lot of different ways. Yeah, absolutely. Great question. And I'll tell you, one of the major, major mistakes that business owners make all the time, I've seen it over and over for the last 30 years plus, is they treat, they believe and they treat revenue growth and profitability as direct drivers of value for their companies. They think if I just keep growing the top line and I just keep being as profitable as I can, I'm naturally increasing the value of my company and the appeal to an eventual buyer. And that is a big fallacy. I spent 18 years turning around distressed companies, Josh, typically as interim CEO, turnaround CEO for six to 18 months at a time in any given client, full-time deep dives.

7:02And I learned in those years that many of the companies that were in distress, that were turnaround clients of ours, they got there by growing too fast. They were growing revenue. They were focused on growth, growth, growth. They didn't understand how to build the infrastructure around that growth to support it, to make a sustainable company. And eventually they had weak points that eventually became fail points. And that caused the company to slip into distress. And if they catch it early enough and they ask for help early enough, they can turn it around and fix it. In many cases, they wait too long and it's too late and they end up failing.

7:46So where the real value drivers are is in all of the underlying qualitative attributes that are spread throughout the whole company. Revenue and profitability are byproducts. They're not direct drivers. And so if they focus on all of the qualitative attributes around the company across the whole enterprise in a balanced methodical manner, and they increase the quality, they're reducing risk at the same time, revenue and profitability will be the byproducts of that. And that will naturally increase the value of the company. If they're just growing revenue and profitability without all of that other work involved, they're actually increasing the risk of the business and eroding value.

8:35Not always, but in many cases. So - Wow. Right there was, to our friends that's listening right now, If you were just casually listening to what Ken just said right there, go back and rewind and listen to that. That revenue and profit is the byproduct. But, Ken, let me ask you something. I hope you don't mind, you know, just about pricing. This is something that we've been contemplating. Um, so just internally, you know, we've had a price point and on a product and yet our scope has kind of increased, uh, gradually over a past couple of years to the point where it really like the, the, the profit margin on a particular price.

9:18And I am sure that there are other people like they encounter this, like, you know, how do we know, or do you advise on when there is maybe a shift in pricing that might need to take place? Yeah. You know, Josh, it all starts with a really well-developed, comprehensive strategic plan. And I don't know, I almost know, I can't even remember ever visiting a company in the last 30 years that actually had one in place that I thought was credible and well-developed and articulated and everybody in the company understood it and so forth. But there is a process, there's a framework that any company can follow.

10:01We teach about it. We teach it in our, we have a certification training and certification program for advisors and business owners, where we teach some of that, those concepts in the framework. But there's a process that companies can go through to develop, to get a clear understanding of the current state, qualitative and financial state of the company. And then the strategic planning process helps them to create a really clear future vision, future state of the company. And then you craft an implementation plan to go from here to there that usually takes several years, three to five years to achieve.

10:40But in that process, pricing, product mix, customer mix, target audience, target customers, market expansion, innovation, all of those concepts are all covered because it's really critical for companies to remain very focused on where they're trying to go and why and how they're going to get there. And most companies end up, I'll call it scope creep. They have products and services that start off as focused, but then in response to customer requests, they start moving a little outside in this direction, a little outside in that direction. They change their pricing to accommodate this segment or that segment.

11:27And they end up serving all kinds of customers in all kinds of different ways. And they lose their focus. Their pricing becomes ineffective. Their margins start to shrink. And they're in this sort of cycle that's hard to get out of because now they've created an expectation from their customers about what the pricing is. and customers don't like things to change. And it's just, so it really all starts with a strategic planning process that helps the company create a very focused vision of what they want to be when they grow up and take three to five years. Look out, what do they want the company to look like?

12:13There's so much, I wish we had more time to go down the rabbit hole on that. You're like scratching the surface like, Like, ooh, that deserves a deeper conversation, which folks can have. So your website is corporatevalue.net. You have resources on the site. And certainly, I'm hoping maybe you can kind of explain where corporate value metrics comes in, like how you work with your clients. What does that maybe initial engagement look like? I don't know if you want to touch on your software platform that you use as well. Sure. So our mission is to enhance the value of private companies. And we do that three ways.

13:01We have an education program where it's a very rigorous certification and training program. We train advisors from all different professional disciplines who want to learn about the whole rest of a business enterprise, all of the functional areas that are outside of their expertise so they can have more holistic conversations with their clients. So we have the educational component and we do a lot of other education as well, speaking, writing, webinars, seminars, a whole bit. We have a software platform that is the most sophisticated and versatile value growth or value creation software really ever introduced to the advisory world.

13:47It's drawn acclaim from advisories from all around the globe. And that's called the Value Opportunity Profile. It's a SaaS product. And we license it. We train and teach how to use it and it all. It goes hand in glove with all the concepts in our educational program as well. We also provide direct advisory services and training services to business owners and their leadership teams, as well as to advisors in their firms that they run. So three segments, education, software and tools, and direct advisory services. Yeah. Your website, Ken, is corporatevalue.net. for someone that's been listening.

14:32I'm just quite specifically like, what would you recommend they do from here? If they're, maybe they're doing some research on you, this podcast came up and now they're listening to the episode. And what's next step here? Yeah, I mean, if they like, if they're interested in this whole field and they'd like to learn more, if they visit the website, there are a variety of kind of, you know, call to action buttons where they can request more information, request a call, request a demo of the software, whatever they like. And any one of those will come to us and we'll be able to set up a call or a Zoom meeting or whatever they'd like.

15:08And they can learn more. We're a very low pressure organization. We're not a sales pressure kind of organization. So we want to educate people first. And if they have an interest for deeper knowledge and they like to get involved in this area, then we'd love to bring them into our community. That's which is actually the part of our poll offering is we have a value growth community, a very robust portal where advisors and owners, practitioners can join our join the community, get access to tools and training and webinars and mentorship programs and all kinds of resources that we have and offer.

15:53as well as connecting and networking with all of the other members in the community. So that's the other way that they can get involved is just join the community and learn more and then go at their own pace. Yeah. Ken Sanginario, again, you are a value creator. Also, you're a podcast host. Do you mind sharing a bit about your podcast? Sure. We just launched our podcast called the Value Growth Podcast. It's going to be all about all of those underlying qualitative attributes in companies and where the real lovers are that need to be pulled and pushed to create value in a private company. We're going to be interviewing business owners and advisors, people who have created a lot of value in their organizations or for their clients by following the principles of value growth in one area or another, or maybe holistically for the entire enterprise.

16:57But we want to interview people who have made a big difference for their organizations or for their clients, not by strictly chasing revenue or slashing costs to get more profitability, but by doing it the right way. And we want to hear their stories and share their stories in an educational way so people can really learn what it means to create value in a company and increase the quality, reduce the risk, and make the company more sustainable on the long-term basis. Yeah. All right, Ken Sanginario, again, thank you so much. Again, your value creator and, of course, the founder of Corporate Value Metrics, your website, corporatevalue.net.

17:40Thanks, Ken. Thanks, Josh.

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