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Diagnosing The Workplace: Not Just An HR Podcast
Diagnosing The Workplace: Not Just An HR Podcast
Does Culture And Performance Increase A Company’s Worth?
In this episode, we explore how companies are commonly evaluated for their total worth for acquisition, and what elements impact that evaluation. If you work for a company that is maybe not seeing the direct value of investing in employee performance or company culture, this could be a very helpful conversation to hear!
Our prescription for this episode is to understand the risks of increasing a company's value through cuts and "going lean". Depending on what your sales timelines are, you could be hacking away at your real worth without realizing it.
To talk more about the process and systems needed to effectively scale, just reach out to us at info@roman3.ca or through our LinkedIn page at https://www.linkedin.com/company/roman3
Don't forget to sign up for our New Quarterly Newsletter that launched in the Fall of 2024!
About Our Hosts!
James is an experienced business coach with a specialization in HR management and talent attraction and retention.
Coby is a skilled educator and has an extensive background in building workforce and organizational capacity.
For a little more on our ideas and concepts, check out our Knowledge Suite or our YouTube Channel, Solutions Explained by Roman 3.
Breaking down everyday workplace issues and diagnosing the hidden sickness, not just the obvious symptom. Our hosts, James and Coby.
[COBY]:Did we lose a patient?
[JAMES]:No, that's just my lunch.
[COBY]:Hey, thanks for joining us. I'm Coby, he's James. And let's get started with a question. Does culture and performance increase, a company's worth?
[JAMES]:Okay, so this conversation is kind of building off the conversation that we had in our last episode about how, stability can improve organizational investment. And so I want to restate a couple things. again, of course, I'm avoiding answering the question outright, but that's been a trend for the last three seasons, so it shouldn't really be a surprise to anybody. but as I talked about a bit in our last conversation, we have a number of clients who have, merger and acquisition is kind of a central component of their growth strategy. And so a significant number of our conversations recently have really focused around the role that company culture, stability, retention processes, these things have on the value of an organization. Now, at the same time, we've also been having conversations of similar nature with companies that are trying to prepare for investments, primarily around venture capital, but also nonpr proffits that are wanting to expand and grow their operations to capitalize on new or increased project funding. And these conversations have led to many, many discussions about the role that organizational culture, systems and human capital strategy have on the value of a business from an or acquisition standpoint. So today, what I want to explore with this question and with this conversation is really a bit about the business valuation ecosystem and whether or how we can incorporate a broader perspective beyond what's typically seen as just the financial bottom line.
[COBY]:Yeah, and I think something that will be kind of helpful too is that for you listening, this is hopefully going to be, an interesting conversation if you're trying to better understand kind of the business case for investing in culture and performance, especially if you're working in private companies, if you work in a company, orry in a company or sector really, that has a lot of acquisition and a lot of mergers, this could be very helpful to kind of understand kind of where you should be focusing your time and efforts and what the company should be prioritizing. So hopefully, even though it's we're going to get into things like EBITDA and valuation and those kind of that hopefully we'try and this will still be fun. It'still be kind of interesting for broad strokes, but I really think that there's a lot to be gained from the perspective of looking at the different ways that a company can be evaluated and realizing that spoiler alert. There is a value to a company's worth coming from culture and performance that has a lot of versatility to it. So it's something that understanding this, maybe even this language could help you in your job if you're in a position where you're trying to kind of make cultural changes and trying to make the company put more value in human capital and potentially reinvesting in your culture and your performance metrics.
[JAMES]:Yeah. I mean being able, anytime you want to kind of shift the narrative or create a rationale for why a company should invest in something, attaching it to the bottom line, attaching it to the value of the company is a great way to do so. if you, are you. Coby, you mentioned, you know, if you're in a industry with a lot of merger and acquisition, our conversation, this conversation is going to focus primarily on the ###ire, but if you are in a situation similar to some of our clients that acquisitions is a key part of their growth strategy. There's still a lot of relevance here, but it's focusing on really understanding your own situation and measuring against your potential, acquisitions.
[COBY]:Yeah. And so like you said in the intro, we've had some conversations and we've had clients that in this space of we're prepping to be bought and it's one of those things where we've worked in part of teams with companies that are aiming towards that. We have some of our own clients that have been doing that. and even your days economic development, you saw a lot of that kind of stuff kind of happening. You were kind on the side from the government supportive area. So this is something that we like, we've seen a lot over the years. but like we've seen conversations come up just very, very recently. So we like to talk about stuff that's kind of top of mind for us. But also you know, maybe it's reflective of what's going on in the marketplace out there. But I think where I'm seeing flaws and you're probably better to kind of correct my thoughts on some of these is I'm seeing an over reliance on the mentality of cutting costs and going lean when people are kind of in the pre acquisition, pre being bought stage. And to me I think that it's a problematic that that's kind of the go to place to start for many founders and owners.
[JAMES]:I don't Think it's problematic that it's the place to start. I think it's problematic that it's the place they end. Because if you're looking, we need some sort of common measure, some common metric to evaluate a company against. And the one metric that is that you can compare across organizations, across industries, across different regions and countries is the financial health of the company. Right? And typically expressed in ebitda. so using that type of metric as our base point makes a lot of sense, right? Because we want to know how much financial health the company is in, how much is left in the bank account after kind of our core expenses are taken care of. There should be more money left than money that we are spending. If you are spending more to deliver services than revenue that you're bringing in, that's not going a very valuable business, right? So you need to show that from an investment standpoint, the problem is, many, many, I will say the business valuation, consultants and people that I have encountered primarily focus on EBITDA as the sole expression of a company'value or at least the dominant expression of a company's value, when really we need to figure out why the company is being acquired in the first place. If I over generalize, in the situations, in the situations that we've seen in the conversations that we've had, there's generally two big reasons why companies are being acquired. One, there it's an asset acquisition. So there is some asset or set of assets that has value, whether it's physical buildings, whether it is a unique value proposition, a, piece of technology or system or software that is creating the value. You can attach a dollar figure to that, or there's being acquired to improve market share or increase market share or you know, there's some synergies there between the company that is looking to acquire and what the company that's being acquired does, right? So they're trying to expand a new markets or open up a new or increase their own market share by acquiring competition. Generally speaking, those are the two situations that we see the most often. And the cost cutting kind of makes sense. In the asset, piece, right? You want to show the greatest amount of value overall. So you have an, A tangible asset that you can put a value on. And then you have the EBITDA which is showing that the return on that investment of that asset is greater than the cost of acquiring that asset or running that asset. so that makes a lot of sense. And we see Companies focusing on just the bottom line numbers in those types of conversations. The problem is when you shift gears towards an acquisition model that is not based on a singular set of tangible assets, but it is more about acquiring company to increase your market share or to basically as long if the company is not being stripped for parts and you're actually acquiring a company to continue doing what it has been successful doing, then you need to not just look at the financial performance, you need to look at what has gotten the company there. And nine times out of 10, that's people, that's structure, that's stability, that is process, that is leadership. It's the leadership team, it's the founder, it's all of these other elements that talk to competitiveness, not just the revenue standpoint.
[COBY]:Right. So just to take a bit of a stepback, I just want to make sure that we're fully accessible to anyone listening to this episode. Can you just briefly describe what EBITDA is? And then yeah, someone doesn't case, someone doesn't know.
[JAMES]:Yeah, I'll probably mess up the acronym, but essentially it's your earnings before deductions, interest, taxes, depreciation, appreciate. I don't. Right in front of me. yes. So EBITDA is a common metric to used to describe how much money is left in the company before you pay for your taxes and depreciation on assets and all of these other elements, other than like your core operational costs. So you've got your total amount of revenue, you take out your core operational costs, what it costs to run the business, what you have left before you calculate your profit, which is money that's left after taxes and everything else. That's what your EBITDA is. So it's less than your total revenue, it's more than your total profit. Generally speaking.
[COBY]:No, that's just helpful just because y. Again I just want to make sure.
[JAMES]:That everyone listening is the reason why you look at EBITDA and not profit is because profit can vary significantly based on the tax, implications, what region you're set up and how your organization is structured, whether you are registered within the country that you are operating in or whether you have a registration in a tax, more tax friendly situation. So EBITDA becomes a much easier standardization number to evaluate.
[COBY]:Right. And when EBIT is being calculated, it's usually being calculated with valuation of multipliers. Right?
[JAMES]:Well when you're calculating the value of a business, usually yes. So the valuation is usually a multiplier of EBITDA based on a whole bunch of different factors and those factors can change based on who is doing the valuation. But when you get to the idea, when you hear this company is worth X number of millions of dollars typically it has some sort of multiplier on their ebita. That's generally where things come in. Now depending on who's saying it, if it's the company themselves, they may be putting multipliers on their revenue instead of their EBITDA to make things sound really nice. But from an acquisition standpoint, from an actual business valuation for acquisition or investment it's going to be based on ebitda, not revenue.
[COBY]:Right. Okay. That's again I think helpful clarity. the reason why I say I see problems with the cost cutting focus going the Leien again not that I necessarily think that that's a wrong thing in all situations I think and you spoke to a better saying that it's more of if that's where they end or stop, that's us that can be problematic. But I mean to me the idea of the cost cutting going leaner that approach, to increasing your valuation, numbers is that works in a really short term like sales timeline. Like when you have like when someone's coming at you right now and you want to turn this around in six months. That kind of makes sense to me that people would do that. but I mean but maybe not all businesses. Only if they're like I guess like I said they're kind a competitor and they want get you out of the market or their private equity and they like to curve up companies and sell the parts to me. Y.
[JAMES]:If you're being curved up for parts then whatever, that's fine because you're not gonna see the negative impact of your cuts anyways. And neither is the company that's acquiring youuse they're going to chop it up for all the, and take all the value out of the company anyways. You're right. It is a short term mentality. basically if you can sell and get out before the impact of your cuts or show on your bottom line, you're okay. it's not depending. Well I'm not going to get into motivations because I'm not going to speak for other people. I don't see it as the most effective way of showing value in a company. and honestly I haven't seen. Now I will preface this by saying I've not handled a massive amount of acquisitions or business valuations but the ones that I have seen typically take significantly longer than six months. The lead up time to it from the time start that you identify a potential investor or identify that you are ready to exit your business to the point of actually signing on the dotted line and all of the due diligence that takes place between that initiation and that actual sale, there's a lot there and there's a lot of any investor with half a brain is going to do their due diligence, right? So if you have made cuts to boost your EBITDA as a share of earnings in a strict method of trying to raise your business valuation, that's going to come out in the due diligence unless you are able to move exceptionally quickly.
[COBY]:Right. Because when companies kind of come to us it's usually because they've decided to not take that approach. Usually it's because they're like okay, we've got a longer term exit plan, a year, two years, three years even and they want to sell the business growth opportunities, they want to be at a much more profitable hyper performing piece in order to increase valuation and they're looking to be bought out by someone that's not going to carve them for part. Someone that's going to utilize the assets the company and kind of be good for the company under the new ownership or whatever like that. And to me again that makes more sense to me from bothaluation standpoint but also just kind of a sustainability standpoint because the way I kind of see it and again I see it in very simple terms sometimes because again'a more your area than mine. But to me it's like the cost cutting is versus kind of the investment in increased performance and increase growing the company before sale. It'kind of like when you're selling your house you get like cracks and mold mold in your ceiling but like you have a quick turnaround time so you just slap a coat of paint on it. and because by the time the paint dries they come in, they view it, you sell it before the mold comes through the paint or the crack show up again. Right. Versus vesting in performance is actually fixing those pieces, putting the stuff dropping in 30k to add another 100k to your sale price. That type of longer term but more sustainable, you know, not covering up the cracks and the problems but like, but fixing them so that way it's a stronger, better opportunity for the purchaser. And to me that's kind of how I see it. Again it's in simp no, it's not.
[JAMES]:A bad analogy because just as in real estate, there are some things that you can invest in, that are going to add significant value to your home and there are some things that you can invest in that are going to add very little in actual monetary improvement or return on that investment to the sale of your home. The same is true in our businesses as well. And I understand how people, why sometimes we forget the people component and the process component and this structure component and the growth component. Because it's very common to hear that you know, investors don't pay for potential. Which is true. Right. If we wanted to sell our business currently and we went to somebody and said, you know what, we've been doing all these great things in this market and we've identified this really substantialher market that you know, if you get into there, you can, you know, increase revenue, you know, 15x great. All we've done is identified an opportunity. All we've done is identified potential. But if we take the time, we identify that potential and we take the time to actually create a foothold in there, create some stability in that new market and show success in that market and that we can actually capitalize on, that is an fundamentally different conversation. So this is what we often see is the language of investors don't invest in potential being used as an excuse not to invest in yourself. To put in your company in a better situation than where you are currently increasing your market share or opening up. Creating a foothold in a new market is an incredible conversation to have with an investor. rather than here's this great opportunity to here's what we've done so far, here's the market size and here's the strategy that we used to show improvement and gains in that market.
[COBY]:Right? And that'actually said is that the cons of the investsting in performance investing in growing the company before sale is that it can reduce short term profits. If you're actually putting investments in and you have to carefully document the story for the investors. But the thing is, but investments are valuable if they're visible and they're de risked, right? But I mean if you show metrics around the traction you've achieved, like revenue per employee or like your efficiency gains or the year over year increase of sales or the launches of new products, the foothold m and the projected momentum, right? Plus you actually kind of show, if you really make it clear how the investments you're making now are going to show off or sorry, payoff be seen in the post sale. So that way the investors can reap the benefits that are going to be coming. But a lot of that is about of having your processes, your systems, everything that'documented that'clear Thats the stability that we talked about in our last episode. You want to make sure that you are set up to scale and that your scalability is clear and it's transferable to the buyers once they take over, that it will continue on afterwards. Right. So part of that is making sure that the performance and culture is ingrained into the operations and they operationalize all this kind of stuff because that's going to be how it's going to keep continue paying off post sale.
[JAMES]:Yeah, I mean we need to understand what makes a business attractive for investment. And this is a conversation. When I was in the economic development role, you know I worked primarily with small businesses. And you now helping them. A big part of that was succession planning and helping them to actually sell their business or valuation was a big component of that. And people invest. The businesses that have the greatest return on investment or the businesses that have the most value are ones that do not require the founder or the owner, the, or the purchaser to be involved in the day to day. So with small businesses we see this struggle a lot where there's still so much resting on one person or one or two key people. Last episode we talked about the technical founder paradox and we talked about linchchpins, and we talked about all of these elements. So I'm not going to rehash that entire conversation. But it's really important to understand that most people who are buying a business or acquiring a business, most of them are not looking to buy a job. Right. There are some who will, who will purchase a business so that they can work in it and lead it at the same time. But largely people are looking for it as an investment. They're either going to absorb the business into their current operations if they are a competitor and help to grow that piece. Maybe even under your same brand, maybe not. But if it require, if the success of the company still rests on one or two people, if it requires them to do an awful lot of the day to day work, it's far less attractive to them than if you have a robust leadership team that knows how to work together and you know, within their own responsibilities but also being able to collaborate and not creating silos, management teams that understand how to motivate employees and structures that allow for people to know what is expected of them. Live up to those expectations through performance frameworks and accountability frameworks. You know, the more structure we have in place that provides that stability, that provides the consistency in expectations and outcomes, the more attractive that becomes as an investment for somebody else. Because it means that all I need to do if I am buying this, if I am acquiring this business, is I can be the visionary leader who sets the goals, sets the target, sets the expectations and the leadership team is effective and understands how to take that vision, casting and operationalize it. And they know how to disseminate that to the managers. Managers know how to disseminate that to the employees. And everybody is working towards the same goals. That's vastly different than what we see many companies and their situations that they are in.
[COBY]:And the thing that I always kind of come back to whenever we get into these conversations is that the performance management systems, the strong, the operationalizing the culture and human capital elements, the improving performance and improving output, and again and again ingraining the scalability into the culture and into the operation right down to how policies are designed, designed to be scale designer scalability that justifies higher multipliers when it comes to evaluation. Because it's about the growth potential and the transferability of the performance of that higher output, of the greater, other, greater outcomes of that scalability into the company's value. Right. Because the idea of is that, you know, if your company hasn't operationalized its culture and its human capital strategy and the, you know, you have a great leader and you have a great leadership team and they're all doing great, very, very, very well, then a lot of them probably leave post sale. It tends to be something that kind of commonly happens if they're the only thing propping up that performance, propping up those, that customer experience, that gener higher sales or whatever it is that ends up not being transferable. To the new owners and then that evaluation piece isn t much there. But if that stuff is internalized and operationalized into the way organientation is structured, it'built with intention and strategic intent for scalability, for higher performance without a major intervention from the purchaser that increases the multipliers when you're looking at evaluation because it's about growth and it's about transferability.
[JAMES]:Yeah. And one thing that we haven't, which is odd for us, we haven't really talked about the employees yet.
[COBY]:Right.
[JAMES]:And what came up for me kind of as you were talking is that think about so oftentimes, the potential when a company is getting ready to sell. whether it's the the founder is exiting or whatever the circumstances that led to it, oftentimes that's kept under wraps because what you don't want is for all of your talent to run out the door because of the scarcity mindset, this idea that well the company is going under or they're just going to get their payday and we're going to get stripped for parts and so I need to find something else. So oftentimes there's a level of secrecy to this and confidentiality is a good thing. I'm not saying it's not. but let's compare the perception of those two primary conversations of we're going to cut costs to increase EBITDA versus we are going to invest in stability to increase valuation. Right, Right. From an employee perspective, one is a, well they're cutting costs so I need to protect myself and my family. So the first people out the door are going to be your top performance because the top performers in your organization have more opportunities to get better jobs than the poor performers in your organization do. pretty basic set of facts. The other conversation though, if people know that the central value that how the company is being sold and evaluate and valued is based on not just the assets that the company has are not just the financial bottom line multiplier, but the people contributing to that are valued as well, then it's more likely that the perception will be well whoever is, they're buying us, buying this company because of us, it's unlikely that they're going to step in and clean house. Right. Usually they'll probably get rid of some or much of the leadership team because that often happens you often, especially if this is a regular occurrence for a ah company they will have leadership teams that they will want to parachute into so that you, the newly acquired company can be integrated with the parent company culture and everything else that's going on. But it's not a given. Right. And it doesn't have to go further than that and it protects your top performers.
[COBY]:Right. Well the thing is that when we saw this with a client recently, they didn't sell the whole company but they sold a massive department and it was because of the people. I mean there certainly were a lot of assets, and a lot of resources within this department. But the thing was, was that the company sold this really important big part of their business because of how high performing the team was, because of the outputs, because of the customer experience. All of this kind of stuff that we're talking about made that division or that department so valuable and that was it being really looked at by competitors. But what was interesting was again, pro of. What you're kind of saying too, is, that making the acquisition. Making the acquisition process not scary or not, you know, like, secret of, in a sense, but almost like this is something that's happening, but we are taking care of you. Even, you know, when you're gone, we're going to make sure that part that you're, you know, that there's.
[JAMES]:I still wouldn't announce to your entire staff that you're planning to sell the business. I mean, there's a time and place for that conversation to happen. But yeah, I mean, when you get. Companies, no matter how big they are, are just. They're comprised of small communities. And no matter how hard you try to keep a lid on things, rumors are going to start flying, soon. It's inevitable. Unless you have a very, very tight leash as a, owner. I haven't seen it. I haven't seen it yet. maybe someday, but in the absence of information, people will fill in the blanks themselves. So you. At some point, you do need to get ahead of the narrative. And if that narrative is no. Our employees are central to the value of our business. That places them at a much. That places a much different perception in people's minds than the reverse, right?
[COBY]:Absolutely. M. And again, in cases like. Like we talked about recently, where that division was sold, it was sold because of the people, but it was also so because of the processes. It was sold because of the systems in place that were transferable to the new owner. The new owner wanted that success to prop up and augment what they were already doing. And that made it an exceptionally valuable.
[JAMES]:They wanted the asset of that department, but it was also the people in that department. And honest, let's be real, it was the leader in that department who had put many of these pieces in place that had created an incredibly effective team that turned that from an asset acquisition into, integrating these people into the core operations, of the larger division, larger company, so that they could take those best practices that had been developed. Which is also an asset.
[COBY]:Yes.
[JAMES]:And deploy that throughout the organization. Right. They saw, not only physical, tangible assets that had value. They saw people that had tremendous value in making those assets valuable.
[COBY]:but I think it touched on something that I think is just worth repeating, that the best practices, the systems, the structures, the protocols, those are assets that are transferable to the new owners when they're not. When they don't live in just the mind of a leadership team or individual. When you operationalize those, those processes, those systems, those best practices, that performance structure, then that is a transferable asset that again creates the multiplier. Right. And that's something that I think is completely missed when we are looking at the cost cutting approach over the performance investment approach. Right. Because I mean like, because the thing is that if you have two companies ah. That are like you compare two companies that have maybe a similar sales timeline, similar industries and maybe have the.
[JAMES]:Same like ebitda, maybe they're competitors in the same marketplace.
[COBY]:Yeahah. But I mean, but if one of them is cutting costs then it's going to basically it can really, it can flatten the multiple of their EV valuation. Right. Whereas when you add these assets like the best practices and like the systems and you're talking about growth metrics that will increase more multipliers. So a company will end up have be. Well instead of havingbe a 4 times multiplier, may have a 5 or 6 times multiplier. Right. Same. So just the company's worth more because of because of the additional growth metrics and the additional assets that exist.
[JAMES]:I think it's worth mentioning as well that we need to think about the perception that cost cutting sends to an invest.
[COBY]:Yeah, that's true too.
[JAMES]:Because if you slash a quarter of a million dollars off of your expenses, that's coming from somewhere. It's either coming from staffing, it's coming from marketing, it's coming from, I don't know, wherever you're find that money'not just magically appearing, it's being taken from somewhere else. When do businesses cut costs? When they are in trouble? When we are like we've seen it over the last couple years. Well, we've seen many cycles of recessionary cutting for the last number of years. Far too many cycles of it for my liking. But think about when businesses tend to cut costs. what's amazing to me is that when a business is in trouble, often the first place they start to cut costs is around marketing. So you're not able to your revenues have dropped. So let's cut the department the division that' you know, responsible for helping to attract new clients. Right. Anyways, my mentality doesn't work out but the perception is there regardless of your intent in doing it. Your intent might just be oh we found a little. We've been able to move a few things around and show some Improvements. And we want to show the improvement in ebitda. But when I do my due diligence and I look at historical, spending and I start to question, well, why either you've. I'm identifying that you've artificially made cuts to increase your EBITDA and therefore artificially inflate the value of your company, or I'm looking at that and going, what's happening within this business that is forcing you to make cuts rather than making investments? We invest when things are good, we cut when things are bad. Right.
[COBY]:Yeah, no, and that's a fair point. And yeah. So, like, again, I don't want to, like, I acknowledge I have a bit of bias away from the cost cutting just because, again, it's mostly because.
[JAMES]:Well, I mean, looking at what our entire focus is on people. So it's not a surprise that we are biased in one direction.
[COBY]:Yeah. But to me, I think the reason why I am so much more why we really try and showing the value of performance investments, to our clients when we're talking about, acquisitions partly is because I think that with the cost cutting, it creates false positives when done when kind of like you just talked about, but also like I say, but it flattens the valuation. Like your multiples become flatter. Right. So it is like again, and if you do it too soon, like you were saying earlier on, then the side effects of the cuts start coming out and like, the stability starts to weaken because you took a chunk, out of the value of the organization. And I came from somewhere, likely came from people or likely came from pull.
[JAMES]:$250,000 out of your $300,000 marketing budget in order to show an improvement in your ebitda. And that sale, does not go through quickly. Your investors are. And your clients are going to see a dramatic shift in your, revenue over time.
[COBY]:Yeah. So I just think that again, there was a real lack of sustainability to cost cutting that really. I can only see it in really short sales cycles. but again, I also kind of like, again, I'm trying not to say also that it's also a bit shady. I'm trying not to go there, but, I'm kind.
[JAMES]:But you just went there. You just stayedeah.
[COBY]:Yeah, I know.
[JAMES]:You might as well lean into it now.
[COBY]:Yeah, you're right. It does seem more. It's at least ripe with opportunities for it to be shady, to be the most generous. Right. Whereas when a company is going, okay, so we're going to sell in two to three years. So we're going toa invest 100k, to make a million or whatever you like, kind of whatever that again increasing to the growth metrics that you can. So you're positioning for growth, you're positioning for transferability, you're positioning for more operational structures that show again continued success post sale. Largely when you're investing in scalability, sustainable, stable scalability that has the ability to really add to the multiples that you need for your valuationation to go up. You're worth more when you have that kind of investment in that sustainable stable scalability. And to me that is so clear and it's something that again it's less shady too. But I really do think that this is something that you know, we need to be really again as businesses we need to be really trying to focus on what is going to be the best thing for us in the medium term and long term and not looking at the short term pieces because really I really do kind of think it is that if you're planning to sell soon, within a year I can kind of get behind the going leaner and to maximize reita, but again still seems a little bit thereane there. But if you're again a year to three years out, invest in sustainable performance gains because those are going to reduce your risk and improve your scalability and increase your valuation.
[JAMES]:Well, and if you invest in building the structures and the supports and you know, maybe it's investing in getting a foothold in a new market, maybe it's investing in you know, whatever that investment is, there's no guarantees that these, that you're going to be acquired, you may put it out there. So do you want to be left with a organization that has been stripped already by yourself and be unable to sell it or do you want to be left with an organization that is designed for growth?
[COBY]:Yeah. And so again like going back to you, listening, if you're in a position where you work in a company that maybe doesn't invest in its performance structures, in its culture, in operationalizing kind of the human capital element to it or doesn't have the systems or processes and those kinds of things, this conversation about again about valuation, about acquisition opportunities, is something that really could be a helpful thing for you to have in your back pocket when you're trying to promote, excuse me, promote that we should be investing in these things, that operationalizing our performance structure, creating you know, again more growth metrics is something that can be done that has a very high roi, especially if you're in a company or industry with high amounts of acquisitions and it something that again, like stable scalability is something that we talk about a lot with our clients and in our work because it's kind of a corond of the work that we do. Part of our assessment tools, part of our structural pieces. When we go in, this is usually what we're trying to do. We grade organizations on their ability to operationalize stuff and how far and how well they're doing with scalability and we see the success that comes when they do that. But it's one of the things where there's a huge mindset shift that has to happen for that to become as normal as we would like it. But as normal I think as those that are looking at the bottom line would like it.
[JAMES]:Yeah, I think the only thing that I'll say, I mean I'll res. Say because we've both said it several times already. But once again we are talking about short term versus long term strategy or lack of strategy versus actual strategy. We talk about this mindset in so many different areas because plan beats no plan. strategy. We need the timescale of business. Yes. We have to be looking at what are we doing this quarter, next quarter and into the future. But we also need to take a step back, broaden our view a little bit so we can look at where do we actually want to go so that those quarterly metrics, those annual metrics are actually in service of a larger vision of a larger strategy. We need to take a longer view and stop being so reactive.
[COBY]:No, that's good. yeah, I don't really know if I've got anything better I could say than that for the summary. That's pretty good. Yeah.
[JAMES]:Okay, so Iice, that's why I said it.
[COBY]:Yeah. All right. but yeah, so I just think that again if organizations really want to. Again going back to the question, does culture performance increase our company's worth? It does. If you're trying to look at increasing the multiples that will be assessed with your growth opportunities and that's something that will also make a higher appeal to Or so you'll have a more broader appeal to more companies because again, only in the ideas of your just short term sales, maybe to competitors to or to private equity that might work with cost cutting. But beyond that it's investing in your performance and your culture. It's going to be what increases the evaluation of your company and your re worth. Right. So. All right, so that does it for us for a full archive of the podcast and access the video version hosted on our YouTube channel, visit Roman3.ca podcast. Thanks for joining us.
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