Enterprise Value is not
(only) about the money

As a typical corporate finance term, ‘enterprise value’ easily gets reduced to the financial value of a company, or – even worse – to the exit value of a company. Enterprise Value indeed is in widespread use in the domain of mergers & acquisitions and is often solely based on the historical financial performance of a company. Start-ups have successfully increased enterprise value to sky-rocketing heights. They stretched the meaning of enterprise value through concepts such as leverage value, market potential, the value of data, etc. That shows that value is not uniquely based on the historical financial performance any longer. But in this domain it is still mainly based on financial indicators, in order to define the number of shares VCs are supposed to get for their seed money.

In the same time, the scarcity of human capital, or the ability to attract top-performers has become of increasing importance to the future performance and hence the future value of an enterprise. Net Promotor Score (NPS) and other indicators about customer endorsement have also raised questions about whether the value of a company shouldn’t be expressed in terms of future client value, based on factors such as trust in the relationship, believe and alignment of the corporate strategy, etc. Now that human-2-human (H2H) sales & marketing efforts become more important for tomorrow’s turn-over, the brand value becomes a more important factor in determining the enterprise value of a company. That’s also when company purpose, corporate ethics, society impact, client experience, brand attractiveness, etc become crucial factors for the definition of the future value of an enterprise.

Although one could probably find some formula that helps turn those intangible value aspects into dollars or euros, in reality such math adds little value to the debate about what aspects have true value in the eyes of the beholder. That’s why, at Forte, we have defined four value quadrants for enterprise value. The first upper-left quadrant is what classic financial enterprise valuation exercises would focus on. The down-right quadrant is why branding, corporate reputation, ethics, are becoming more important – even in a classic B2B business.

Want to know more about this? Come and see us at Agoria on October 24.

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