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How Much Is My Business Worth Is the Wrong Question · Uphoff on Media Podcast

• 0:02
  SPEAKER_00: Hey, how much is my business worth?
• 0:05
  SPEAKER_00: Look, I get it.
• 0:06
  SPEAKER_00: I have asked myself that question more times than I can possibly count
• 0:12
  SPEAKER_00: across five different companies in more than 35 years and more late nights
• 0:17
  SPEAKER_00: than I'd like to admit doing math on a napkin instead of sleeping.
• 0:22
  SPEAKER_00: These days,
• 0:22
  SPEAKER_00: people ask me the same thing over LinkedIn,
• 0:25
  SPEAKER_00: via email, over coffee and in board meetings.
• 0:28
  SPEAKER_00: And not just CEOs and investors, either.
• 0:31
  SPEAKER_00: Oftentimes,
• 0:32
  SPEAKER_00: it's by operators trying to determine
• 0:34
  SPEAKER_00: whether their equity stake will ever be worth anything.
• 0:37
  SPEAKER_00: And here's what I've learned by asking it and answering it from both sides of the table.
• 0:42
  SPEAKER_00: It's actually the wrong question.
• 0:44
  SPEAKER_00: Not because the number doesn't matter.
• 0:46
  SPEAKER_00: Obviously, it does.
• 0:47
  SPEAKER_00: But because by the time you can answer it with any real precision,
• 0:52
  SPEAKER_00: the decisions that set that number already happened.
• 0:54
  SPEAKER_00: In many cases, years earlier.
• 0:57
  SPEAKER_00: I've also dealt with the harder vision of this,
• 1:00
  SPEAKER_00: trying to get a leadership team to actually look at the leading indicators
• 1:03
  SPEAKER_00: of value instead of admiring the trailing one once a year in a board deck.
• 1:09
  SPEAKER_00: That's the really difficult process.
• 1:11
  SPEAKER_00: Trailing indicators are kind of comfortable.
• 1:13
  SPEAKER_00: They tell you how you did.
• 1:15
  SPEAKER_00: Leading indicators tell you what to do next.
• 1:18
  SPEAKER_00: And most people aren't used to using them to make decisions.
• 1:22
  SPEAKER_00: Here's another lesson I've learned.
• 1:24
  SPEAKER_00: Even if you're running,
• 1:25
  SPEAKER_00: operating,
• 1:25
  SPEAKER_00: or investing in a business with no current exit planned,
• 1:29
  SPEAKER_00: your job is exactly the same.
• 1:31
  SPEAKER_00: Make the business more valuable in every decision every day.
• 1:37
  SPEAKER_00: So today,
• 1:37
  SPEAKER_00: I'm going to walk you through how I actually think about that based on 35 years
• 1:41
  SPEAKER_00: of experience.
• 1:42
  SPEAKER_00: Okay, let's get to work.
• 1:46
  SPEAKER_00: This episode is titled, How Much Is My Business Worth?
• 1:48
  SPEAKER_00: Is the Wrong Question.
• 1:50
  SPEAKER_00: A multiple doesn't measure your company.
• 1:52
  SPEAKER_00: It measures the decisions you made years ago.
• 1:55
  SPEAKER_00: Here's the index that scores the five decisions that actually create value and
• 2:00
  SPEAKER_00: the number they add up to.
• 2:04
  SPEAKER_00: Every operator with a timeline,
• 2:05
  SPEAKER_00: three years to a sale,
• 2:07
  SPEAKER_00: five to a recap,
• 2:08
  SPEAKER_00: an exit somewhere out there that hasn't been dated yet, asks the same question.
• 2:13
  SPEAKER_00: How much is my business worth?
• 2:15
  SPEAKER_00: It's actually the wrong question,
• 2:16
  SPEAKER_00: not because the number doesn't matter,
• 2:18
  SPEAKER_00: because by the time you can answer it with any precision,
• 2:22
  SPEAKER_00: the decisions that set that number already happened, most of them years earlier.
• 2:28
  SPEAKER_00: I talk with dozens of people building,
• 2:30
  SPEAKER_00: running,
• 2:30
  SPEAKER_00: funding,
• 2:31
  SPEAKER_00: and starting B2B businesses every year, nearly all of them with a horizon in mind.
• 2:36
  SPEAKER_00: Almost every one of them cares about value.
• 2:39
  SPEAKER_00: Fewer than you'd expect have a system for knowing
• 2:42
  SPEAKER_00: whether this week's decisions are building it or eroding it.
• 2:47
  SPEAKER_00: Your multiple tells you how you did.
• 2:49
  SPEAKER_00: It doesn't tell you what to do.
• 2:51
  SPEAKER_00: Ask any banker or private equity buyer what a business like yours is worth,
• 2:55
  SPEAKER_00: and you'll get a number.
• 2:56
  SPEAKER_00: A multiple of EBITDA, adjusted for growth, margin, and a handful of qualitative factors.
• 3:01
  SPEAKER_00: This is useful information.
• 3:03
  SPEAKER_00: Also, a report card, not a playbook.
• 3:06
  SPEAKER_00: The multiple describes what the market is paying for decisions already made.
• 3:10
  SPEAKER_00: The customer concentration perhaps you tolerated,
• 3:13
  SPEAKER_00: the margin you traded for growth you didn't need, the team you built or didn't.
• 3:18
  SPEAKER_00: Formulas like this proliferate because they're useful at exactly one moment,
• 3:22
  SPEAKER_00: the moment of transaction.
• 3:24
  SPEAKER_00: They're close to useless at the moment that actually matters,
• 3:27
  SPEAKER_00: which is every ordinary day between now and then,
• 3:30
  SPEAKER_00: when someone in your business has to make a call that either compounds toward value
• 3:35
  SPEAKER_00: or quietly bleeds it.
• 3:39
  SPEAKER_00: The value index runs in two layers, not one.
• 3:42
  SPEAKER_00: That gap is what pushed me to build the Uphoff Valuation Index, UVI.
• 3:48
  SPEAKER_00: The UVI runs on two components,
• 3:50
  SPEAKER_00: and both are built from diagnostic questions, not talking points.
• 3:54
  SPEAKER_00: The first layer is a decision framework.
• 3:56
  SPEAKER_00: Five categories scored the way an operator actually experiences the business,
• 4:00
  SPEAKER_00: not the way a banker eventually will.
• 4:03
  SPEAKER_00: The second layer translates that score into a number.
• 4:06
  SPEAKER_00: Most people spend their attention on the second layer.
• 4:09
  SPEAKER_00: Almost everything that determines the outcome happens in the first.
• 4:15
  SPEAKER_00: Okay, first off,
• 4:16
  SPEAKER_00: revenue quality is where the scoring starts and where I'd tell you to start too.
• 4:21
  SPEAKER_00: How much of your revenue is recurring versus project-based?
• 4:24
  SPEAKER_00: How concentrated it sits in your top three customers?
• 4:27
  SPEAKER_00: Whether the business survives losing its biggest account tomorrow?
• 4:31
  SPEAKER_00: These answers move the eventual number more than most people expect.
• 4:35
  SPEAKER_00: Everything else assumes the revenue underneath is real and sustainable.
• 4:38
  SPEAKER_00: Often it isn't, and nobody's checked.
• 4:42
  SPEAKER_00: Number two, market position.
• 4:44
  SPEAKER_00: Ask whether you own a category or compete broadly against everyone in it,
• 4:48
  SPEAKER_00: and whether that ownership shows up as something defensible or just a slogan on
• 4:52
  SPEAKER_00: the homepage.
• 4:53
  SPEAKER_00: A recognized leader with inbound deal flow is a different business than
• 4:57
  SPEAKER_00: a generalist nobody remembers choosing.
• 5:01
  SPEAKER_00: Number three, operational leverage.
• 5:02
  SPEAKER_00: Ask whether the business runs on documented process or on what's in your head and
• 5:06
  SPEAKER_00: whether revenue grows faster than headcount.
• 5:09
  SPEAKER_00: One question in this category matters more than it used to.
• 5:12
  SPEAKER_00: Does your leverage come from AI structurally embedded in how the work gets done or
• 5:17
  SPEAKER_00: from the older playbook of cutting headcount and calling it efficiency?
• 5:21
  SPEAKER_00: Only one of those is hard for a competitor to copy.
• 5:25
  SPEAKER_00: Leadership depth.
• 5:27
  SPEAKER_00: Ask the question, most founders answer wrong out of habit.
• 5:30
  SPEAKER_00: Could this run for 90 days without you?
• 5:33
  SPEAKER_00: Not whether you can delegate a task,
• 5:35
  SPEAKER_00: whether someone else can close revenue and hold customer relationships
• 5:38
  SPEAKER_00: while you're gone.
• 5:40
  SPEAKER_00: And exit readiness.
• 5:42
  SPEAKER_00: Ask whether you've actually mapped the buyers who'd want this business and built
• 5:46
  SPEAKER_00: the case for why or whether you're planning to figure that out later at the table
• 5:50
  SPEAKER_00: when a banker asks and it's too late to have a good answer.
• 5:55
  SPEAKER_00: Score honestly across those five and you know
• 5:57
  SPEAKER_00: whether this week's decisions are building value or you're just treading water.
• 6:01
  SPEAKER_00: The valuation layer then runs its own questions.
• 6:05
  SPEAKER_00: What sector you're actually competing in and what
• 6:07
  SPEAKER_00: that sector's blended multiple looks like against real transaction data.
• 6:11
  SPEAKER_00: Where you land on the growth versus margin tradeoffs,
• 6:13
  SPEAKER_00: the same one a buyer runs in their head,
• 6:16
  SPEAKER_00: where a strong number on one can offset a weaker number on the other.
• 6:19
  SPEAKER_00: How many qualified buyers want what you have right now?
• 6:22
  SPEAKER_00: And what edge can you actually defend under diligence,
• 6:25
  SPEAKER_00: given a small capped allowance so it doesn't inflate the score on its own?
• 6:29
  SPEAKER_00: None of that waiting is a guess.
• 6:31
  SPEAKER_00: It's built from M&A deal data,
• 6:33
  SPEAKER_00: formulas like the rule of 40,
• 6:35
  SPEAKER_00: and years of watching what our acquirers actually pay
• 6:38
  SPEAKER_00: for versus what founders think they should get paid for.
• 6:42
  SPEAKER_00: That layer produces the number.
• 6:43
  SPEAKER_00: The first layer helps produce the business the number is describing.
• 6:48
  SPEAKER_00: This isn't theoretical.
• 6:49
  SPEAKER_00: LiveRamp's move into the publicist's orbit earlier this year landed at a premium
• 6:53
  SPEAKER_00: because the business sat unambiguously in one category,
• 6:57
  SPEAKER_00: data intelligence,
• 6:59
  SPEAKER_00: with a growth in margin profile a buyer could underwrite without guessing.
• 7:03
  SPEAKER_00: Closer still,
• 7:04
  SPEAKER_00: an events business drew serious competing interests from three private equity buyers
• 7:08
  SPEAKER_00: at once this year,
• 7:09
  SPEAKER_00: not because its operating metrics shifted overnight,
• 7:11
  SPEAKER_00: but because scarcity across B2B events tightened.
• 7:14
  SPEAKER_00: The same dynamic I laid out in detail in the post, the B2B event market is splitting in two.
• 7:20
  SPEAKER_00: Two different businesses,
• 7:21
  SPEAKER_00: two different levers doing the work,
• 7:23
  SPEAKER_00: both downstream of years of decisions in the first layer.
• 7:28
  SPEAKER_00: Run it every quarter, not just once a career.
• 7:30
  SPEAKER_00: Most valuation exercises happen exactly once,
• 7:34
  SPEAKER_00: the year before a sale, when a banker or a board finally asks for a number.
• 7:37
  SPEAKER_00: That timing is backwards.
• 7:39
  SPEAKER_00: A single reading taken right before a transaction tells you what already happened.
• 7:43
  SPEAKER_00: It has nothing left to tell you about what to do next.
• 7:47
  SPEAKER_00: Score the five categories every quarter instead,
• 7:49
  SPEAKER_00: the same way you track any other vital sign in the business.
• 7:53
  SPEAKER_00: The number rarely swings hard in 90 days.
• 7:55
  SPEAKER_00: The trend does the work.
• 7:57
  SPEAKER_00: It shows you customer concentration creeping up while you're celebrating
• 8:01
  SPEAKER_00: the top line,
• 8:02
  SPEAKER_00: operational leverage quietly eroding as headcount scales faster than revenue,
• 8:06
  SPEAKER_00: a buyer map from two years ago that's gone stale without anyone noticing.
• 8:10
  SPEAKER_00: Make this part of your operating framework, not a simple report.
• 8:14
  SPEAKER_00: Engage your executive team in the process and prioritize initiatives based on the results.
• 8:19
  SPEAKER_00: The operators who actually compound value treat this as
• 8:22
  SPEAKER_00: a standing quarter end habit, not a fire drill, the year they decide to sell.
• 8:27
  SPEAKER_00: The ones who treat it as
• 8:28
  SPEAKER_00: a one-time exercise usually find out what their number really was
• 8:31
  SPEAKER_00: the same week they needed it to be higher.
• 8:35
  SPEAKER_00: The question that actually matters How much is my business worth is the question for
• 8:39
  SPEAKER_00: the day you sell.
• 8:40
  SPEAKER_00: Which of these five things did I move this quarter is the question for every day before that.
• 8:46
  SPEAKER_00: Ask the first one on repeat and you'll spend years managing a number you don't control.
• 8:51
  SPEAKER_00: Ask the second one and the number takes care of itself.
• 8:54
  SPEAKER_00: None of this replaces judgment.
• 8:56
  SPEAKER_00: It leaves room for a couple of questions specific to your own market
• 9:00
  SPEAKER_00: because no index should pretend it's captured everything that matters
• 9:03
  SPEAKER_00: in your business specifically.
• 9:06
  SPEAKER_00: What it gives you is something to check judgment against before a banker does it for you.
• 9:11
  SPEAKER_00: The value index structures the thinking.
• 9:13
  SPEAKER_00: The decision is still yours.
• 9:15
  SPEAKER_00: If you want to run your own business through the Uphoff Valuation Index,
• 9:19
  SPEAKER_00: email me at tonyuphoffadvisory.com.
• 9:25
  SPEAKER_00: So here's the real takeaway.
• 9:27
  SPEAKER_00: The next time someone asks me what a business is worth,
• 9:29
  SPEAKER_00: I'm gonna ask them a different question back.
• 9:32
  SPEAKER_00: Which of the five main levers of value did you move this quarter?
• 9:36
  SPEAKER_00: That's the only version of that question that's actually useful before
• 9:39
  SPEAKER_00: the deal is done, not after.
• 9:42
  SPEAKER_00: Well, that's the episode.
• 9:43
  SPEAKER_00: If you found this useful, please do one thing.
• 9:46
  SPEAKER_00: Follow the Uphoff on Media podcast on Apple or Spotify, and please leave a rating.
• 9:50
  SPEAKER_00: It's the single best way to help another operator find this.
• 9:54
  SPEAKER_00: I'm Tony Uphoff, back at it next week.