The Steve Jobs Effect
Recently Steve Jobs announced a leave of absence from Apple. No one in America represents their brand [ingenuity in the case of Apple] more than Mr. Jobs. Reflecting on this situation I felt it an appropriate time to discuss the topic of an Owner’s role and impact on a company valuation. In the case of Apple, the stock dropped 5% on the day the leave was announced. I’ve seen numerous reports that try to quantify his impact on the company, most commonly it seemed to be around 10-15%. That is to say, if it was known his presence would no longer be an influence to the direction of the company, the stock would lose that percentage in value.
This is Apple, a company with a $300 billion market cap and $65 billion in sales! There are armies of product developers and managers and sales professionals that drive the company to success. But what about smaller companies? As a business broker and M&A firm focused within the internet marketplace its important for us to understand the role of an owner and his impact on success. As owners, you need to reflect on your role and impact on the business. When working through an exit plan ask yourself questions such as: “can this business thrive without me?” “If I left today, what would happen?” “Do I possess certain skills that are required for success in this business?” When I sell my website, how much knowledge will need to transfer from me to the new owners?”
Valuation of an internet company starts with a methodology based on financial performance primarily. From here risks are assessed against this as well as adding to it. If I have a high barrier to entry, that may help my valuation. It’s no different with measuring the impact of an owner. That company valuation could swing wildly or also demand a specific deal structure thereby recurring the buyer pool interested or capable of such deals. Think of a law firm, which is built primarily on reputation. If all the lawyers left it upon a sales, what are your really buying?
In the world of small business, there will be an infinite number of scenarios. What is true today, might be different in 3 years when goals are met, hires made and the company now has that infrastructure. The important thing is to reflect on it and position yourself to best accomplish your goals. You don’t want to be in due diligence to find out a buyer of your website sees you as inseparable from the business.
Whether your goal is a complete exit, a sale of equity, or something in between, the earlier you work to understand an owners impact on valuation the more time you’ll have to prepare a business that best meets your goals in this regard.