How Top Leadership Impacts Your Company’s Value — with guest Bharat Kanodia

Pam Harper (00:01): Many people talk about the importance of top leadership, but how would an evaluation expert appraise top leadership's contribution to company value?

Scott Harper (00:11): And why would it matter?

Pam Harper (00:13): Our guest will share how he approaches this question. Join us for episode 200 of Growth Igniters Radio with Pam Harper and Scott Harper®.

Chris Curran (00:30): This episode is brought to you by Business Advancement Incorporated, enabling successful leaders and companies to accelerate to their next level of success on the web at businessadvance.com. And now, here's Pam and Scott.

Pam Harper (00:47): Thanks Chris. I'm Pam Harper, Founding Partner and CEO of Business Advancement Incorporated. And sitting right across from me, as always, is my business partner and husband, Scott Harper. Hi Scott.

Scott Harper (00:59): Hi Pam. It's great to join you for our 200th episode of Growth Igniters Radio.

Pam Harper (01:05): Yay!

Scott Harper (01:05): 200! And yet as always, our purpose is to spark new insights, inspiration, and immediately useful ideas to help visionary leaders accelerate themselves -- and of course, their companies -- to their next level of game-changing innovation, transformation and growth.

Scott Harper (01:21): Now, Pam, and as important as top leadership is to a company's growth, it can be challenging to come up with a clear contribution, a clear idea of the contribution of top leadership during a company's valuation.

Pam Harper (01:34): And this is a critical issue because valuation influences a variety of situations, including mergers and acquisitions, financing, insurance, and more.

Scott Harper (01:44): Of course.

Pam Harper (01:45): That's why we're speaking today with Bharat Kanodia, Founder and Chief Appraiser of Veristrat LLC. They're a technology development, valuation, and analytics outsourcing company that helps founders, business owners, and VCs by telling them what their companies are worth. He's appraised over 2000 businesses and signed off on over 4,500 valuations of assets in real estate, industrial, personal property, and financial assets worth $2.6 trillion in value.

Scott Harper (02:19): Trillion with a T, wow.

Pam Harper (02:20): Yes. Bharat has appraised some very unique assets, including the Golden Gate Bridge, the Atlanta Airport, Uber, Airbnb, Yahoo, the Brooklyn Bridge, Mirage Casino, Las Vegas, among many others. And he lives in San Francisco Bay Area with his family and enjoys sailing, golfing, skiing, and horseback riding. Bharat, welcome to Growth Igniters Radio!

Bharat Kanodia (02:49): Pam, Scott, thank you so much for having me, and my heartiest congratulations on your 200th episode. This is quite the anniversary.

Pam Harper (02:58): Thanks. We're glad you can join us. Now, let's talk about valuation. It can seem like smoke and mirrors to so many people. What do you see as the key to decreasing the mystery around company valuations?

Bharat Kanodia (03:14): I tell people that valuation is a dark art, in a room, in a black box. And if they want to know what's inside that box, call me. The simplest way to think of valuations is in three simple terms: growth, profit, and risk. Whenever something is very valuable or not so valuable, you always follow these three parameters: growth, profit, and risk, and you will not go wrong. Something with a high growth has a high value. Something with high profitability has high value. Something that is less risky has high value. If you follow these three parameters, you will never go wrong.

Scott Harper (03:56): Now value is some times subjective. It is how much benefit do I see in this thing? I have a stamp. To me it's worth $5,000. To you it's a piece of paper.

Pam Harper (04:11): And yet at other times it seems like a very calculated formula, right?

Bharat Kanodia (04:14): Right.

New Speaker (04:15): So you've talked to us separately about how many people approach valuation by looking at the numbers, what's the profits, what's the revenues and so on. And yet you say that there's more to valuation than numbers, the way you go about it.

Bharat Kanodia (04:34): That is so true. Because if we just objectively look at numbers, we may see a very high value, we may see a very low value. But valuation is always a perspective and nobody's perspective is right or wrong. What's important is to understand their perspective. It could be the same object or the same asset, but could have three or four different valuations, depending on the perspective. This can be for tax or for litigation or for accounting or for insurance or for a deal or a transaction. So understanding that narrative, that story behind the valuation is most important.

Bharat Kanodia (05:21): Say, for example, if you're doing evaluation for a transactional deal, there, the stability of the operations or the growth would be important, depending on who's buying it. If a PE investor is buying it, they might be more inclined to value the business or the company for profits or sustainability. If a venture capitalist is looking to invest in the company, they could be valuing the company more on prospective growth. That's why the narrative or the story is more important than the numbers.

Bharat Kanodia (05:55): I tell people that numbers can fall into place. Numbers are just inputs that go into the model, which is the easy part. People think that's the difficult part of my job. That's frankly the easiest part. The difficult part is for me to understanding the perspective of the founder, the owner, or the investor that, hey, what's important for them? Why are they valuing this? Or why would they buy this? Or why would they sell this? Once I understand that, the numbers fall into place.

Pam Harper (06:27): So is there only one story? I mean, who's giving you the story? Do you take that from a variety of sources?

Bharat Kanodia (06:34): No, it's just like an investigation. You get everybody's perspective. So many times when I'm doing evaluation, I talk to the founder, I talk to the owner, and I talk to the investor, I talk to the CFO. I talk to their attorney or I might talk to their banker, or I might talk to some of their top employees. Once I gather a 360 perspective of the asset I am valuing, I am doing a better job.

Pam Harper (07:02): Okay. So the quality of the question you ask really, really impacts the quality of the answer you get and how you put it together.

Bharat Kanodia (07:10): Most definitely. And especially who you ask.

Pam Harper (07:13): Yes. As I like to say, there's always more to the story. It's not just one flat line. With that in mind, there are a lot of myths and misconceptions about the impact of top leadership on company value. What is your experience with this?

Bharat Kanodia (07:35): Top leadership has a lot of impact on company valuation. And I'll give you an example. I have valued WeWork for many of their investors. I was valuing WeWork in 2019 for one of their investors, and they were asking me for a valuation that was 60% more than what I could justify. I made the mistake of saying to them that, "Hey, isn't WeWork just a fancier version of Regus spaces?" Needless to say, they did not like my comment. And six months later, valuation of WeWork dropped from 47 billion to 12 billion because of the things that you've heard that were done by the CEO. And also, let's not forget, it's the same CEO that took the valuation from zero to 47 billion. So, let's give him credit where credit's due. So yes, leadership has the biggest impact on valuation. People need to be able to relate and understand and trust the leadership that they're investing with.

Bharat Kanodia (08:49): Why is Ryan Reynolds investing in a mobile company, Cricket? Because he is bringing his followership, his network, his relationships to the pool. So yeah, most definitely leadership is important. Why would you hire Jessica Alba to lead a diaper company? Because people think that: hey, if Jessica Alba is leading the company, she's going to bring her celebrity, her network, her followers to the pool, and that will help the company grow. In fact, it's serendipitous that I'm writing an episode of "What's It Worth" as we speak on celebrity valuations. So this topic is of most interest to me as we speak.

Scott Harper (09:38): And yet, of course, as celebrities can draw people, the company has to be able to deliver on the promise. And that requires a lot of other leaders other than the celebrity. So, you've got to look at that too, right?

Bharat Kanodia (09:51): Most definitely. For example, after Jack Welch had taken GE from almost a company that was dying to what it was in the early two thousands, all his lieutenants were picked off to lead other companies. One went to Home Depot, one went to other places. Why? Because they wanted that DNA from Jack Welch. And because these lieutenants or generals had reported to Jack Welch, they had their own set of let's say, best practices that they could take to other companies and make improvements there just how Jack Welch did at GE.

Scott Harper (10:35): And yet it was mixed bag. Some of them did really well; some not so well.

Pam Harper (10:39): On this, we're going to take a quick break. And when we come back, we'll dig deeper with Bharat Kanodia, Founder and Chief Appraiser of Veristrat LLC, about appraising top leadership's contribution to company value. Stay with us.

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Pam Harper (12:05): Welcome back to Growth Igniters Radio with Pam Harper, that's me, and Scott Harper. Today, Scott and I are speaking with Bharat Kanodia, Founder and Chief Appraiser of Veristrat LLC, about how top leadership impacts company value. Bharat, how can people find out more about you, your work, your YouTube channel and the name is "What's It Worth." Right?

Bharat Kanodia (12:31): Yes. The best way to find me is to go to YouTube and just put in my name or put in What's It Worth. I will pop up and there's a link to contact us. You can reach out to us with a question. I'm always happy to help people.

Pam Harper (12:45): You can find more information and links for this episode by going to growthignitersradio.com episode 200 and scroll down own to resources. And I might add that What's It Worth is fascinating. I mean, you've really brought the topic of valuation to life. I love the episode about valuing the Eiffel Tower.

Bharat Kanodia (13:07): That was a fun episode. My producer had maybe too much fun with me.

Scott Harper (13:10): And of course you've done one on valuation of podcast too. So it's a great series and we'd recommend it.

Scott Harper (13:18): Bharat, let's build on our conversation about top leadership's impact on company valuation. Now, you say it's very important. Aside from celebrities, in your opinion, what are three of the most critical factors that you look for, digging deeper are here, determining top leadership's impact on company value?

Bharat Kanodia (13:38): When I talk to founders, they think that the first thing venture capitalists or investors they look at is a business model or the profitability or the industry they're in or how sexy their website is. Really no. The first thing a investor looks at is the founder herself. The founder needs to be relatable. The founder needs to be likable. Basically, they're gauging that, "Hey, do I trust this person or not with my money?" That's it. "If I give this person money, will I be able to work with her or will I have to call her every day that, 'Hey, what's going on? What's going on?'" And they don't want to do that because if you think about it rightly, the venture capitalist is not like a bank. They don't have your house. So they're just giving you money based on your credibility and what you say you can do.

Bharat Kanodia (14:28): If you have a followership... Now by followership, I meant if you have a followership of investors, if have a followership of fans, if you have a followership on Instagram or YouTube, or you have a roster of 200,000 emails, that's all followership. If you have a followership, that means you have a core audience you can already sell things to who know, like, and trust you. And that's most important.

Pam Harper (15:01): It's interesting that you say that because a lot of times I'll meet people who are a little more insular. They're not as active on social. I mean, obviously a technology company's not going to be like that, but in some other industries. And it sounds like maybe in every industry now, we need to be starting to make sure that we have that reach. What do you think?

Bharat Kanodia (15:28): Followership could be in your industry. If you are an expert in your industry, are the people in your industry following you? Are they attending your lectures? If you are giving podcasts as a guest, or if you have podcasts you're hosting, are you getting a lot of downloads? That's all built into that whole followership. And if you have a followership, that means you have a core audience you can always sell things to or appeal to. For example, I am working with a founder right now and he has got 2 million followers on Twitter. And when he was starting his new company, all he did was just go on and says, "I'm starting this new company, this is the name, this is the website, and we're looking for $6 million in funding." The guy was funded in three days. That's it? That's all he did. Of course, he had the resume to back things up as well, but that's what I meant by followership. It all goes hand in hand.

Scott Harper (16:24): Now, Bharat, talking about that, you have the resume; sometimes it seems like valuation is backward looking. This person did this, and therefore we can assume they'll do that. Or our company has been profitable to date, but the world changes and situations change. So when you're doing a valuation, how do you take into account not just backward looking, but forward looking as well?

Bharat Kanodia (16:50): When I'm brought to estimate the value of account, that number just doesn't come from thin air. That number also comes from estimating what they will be able to achieve in the future. And since I and no one can actually see into the future, the best proxy I have for their future is what they have delivered in the past. By looking at what they have delivered and how they have delivered or achieved things in the past, I have a pretty good idea of how or if they might be able to deliver what they're promising that they will in the future, which of course is still not 100% guess, but it is better than not having any.

Scott Harper (17:41): We've seen ourselves that sometimes a leader says, "Well, we've been doing this. We want to go in a different direction." And sometimes the stakeholders in that company, whether it's employees or investors or board members go, "Wait a second, we're successful. Why are you putting our company at risk doing this new thing? Yeah, it may get us a heck of a lot more profit, but it might not." Have you ever faced that kind of a situation?

Bharat Kanodia (18:15): I do that on a daily basis because in my company, I'm the crazy idea guy. As Churchill once said, "People who don't change their minds hardly ever change anything." So a leader should be comfortable in coming up with new ideas and showing how to follow those ideas. Now yes, many of the ideas will fail, but many of them will succeed. As they say, "If you're not failing, you are not succeeding." So the thought process behind convincing people onto coming along with your idea is to not just sharing your idea, but sharing where this idea could lead us. And more importantly, what are the next first steps that okay, if we were to do this, I think this should be our first step. See, throw something out, don't just leave it open-ended.

Pam Harper (19:13): As you are appraising the top leadership for a company, you would be looking in real time as how the leadership is working with the followership, it sounds like, and their ability to respond to situations where it's not always a success?

Bharat Kanodia (19:32): Precisely. If Uber founder had just formed another taxi company, well, they were capitalizing on what's worked in the past. They didn't come up with any new idea, but the fact that they came up with the new idea and they executed it and got other people to buy in, that's why we have Uber today.

Pam Harper (19:50): Another question is in this age where so much of a company is outsourced, and of course we've got the supply chain crisis going on right now and everything else, do you factor in top leadership's ability to create more successful strategic alliances or various types of relationships? Would that contribute to your appraisal?

Bharat Kanodia (20:18): Most definitely. Say for example, I'm working with a chain of grocery stores right now and the new CEO that they're looking to bring in is a former executive at Albertsons, which owns Safeway. I personally don't know the executives. I don't know the executive's Rolodex or his relationships with his former colleagues, but the fact that he was a senior executive at Albertsons leads me to believe that he has a decent Rolodex in the grocery store world. And he can bring that expertise and that network to help this new and small change of grocery stores to expand.

Pam Harper (21:05): Ultimately, it sounds like we're talking about a lot of fostering a culture that is growth oriented.

Bharat Kanodia (21:12): Yeah. There was this saying where GFK went to NASA and he asked one of the janitors while he was swooping the floor that, "Hey, what are you doing?" And instead of saying, "I'm swooping the floor," he said, "I'm putting a man on the moon." That's the kind of leadership that you need, which can trickle down to the grassroots level, because unless it's down to the grassroots level, nothing's going to come up.

Scott Harper (21:40): That's absolutely true. And we've seen over and over that engaging people in not just doing the work, but in formulating the strategy and the vision from the grassroots up, can have a huge impact on what the company does and how much value it creates.

Pam Harper (21:58): We're going to take another quick break. And when we come back, we'll talk more with Bharat Kanodia about immediately useful ideas for increasing the value of your top leadership. Stay with us.

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Scott Harper (22:17): You are listening to Growth Igniters radio with Pam Harper and Scott Harper, brought you by Business Advancement Incorporated, where we focus on enabling visionary leaders to dramatically increase the momentum it takes to achieve game-changing results. We're on the web at businessadvance.com.

Pam Harper (22:34): As we've discussed, a leadership team's ability to foster a culture of growth is one of the most important factors for creating a competitive advantage as the world keeps changing in so many ways, faster than ever before.

Scott Harper (22:48): But some leaders have told us that they don't have the time or the right people in place. They want to know what it takes to do this and increase the return on investment.

Pam Harper (22:58): Find out what we've learned. Download our free special report, "Fostering a Culture of Growth: Increasing the Return on your Investment." Remember, your company's cultures exists and impacts value, whether or not you consciously shape it.

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Pam Harper (23:36): Welcome back to Growth Igniters Radio with Pam Harper and Scott Harper. Over the last two segments, Scott and I have been speaking with Bharat Kanodia, Founder and Chief Appraiser of Veristrat LLC, about the impact of top leadership on company valuation. Bharat, remind us how people can find out more about you, your firm, and your YouTube channel.

Bharat Kanodia (24:00): The best way to find me is go to YouTube and put in What's It Worth or Bharat Kanodia. My channel will pop up and you can contact us. If you have questions about valuations or how to increase valuations, I'm happy to answer them.

Pam Harper (24:15): You can find more information and links to this episode by going to growthignitersradio.com, episode 200, and scrolling down to Resources.

Scott Harper (24:27): Now, Bharat, over the past two segments we've been talking about some fairly substantial ideas, some philosophy and beliefs. This is the time where we like to dig a little deeper and get into some practical things that relate to our previous conversation. Let's talk about some ideas about how top leaders can think about themselves and their companies so that when it comes to valuation, they can get top value.

Bharat Kanodia (24:57): The first thing any founder, owner should be doing is making sure that their cashflow is consistent. Now, cash could be profit or it could be revenue or it doesn't necessarily have to be cashflow. It could also be customers who are coming back to you for satisfying their needs again and again. For example, we all go to Facebook again and again. So if you have a business where the customer pays you on a monthly basis, some kind of a recurring revenue or some kind of a recurring usage, that's the business you want to be in.

Pam Harper (25:36): Like a subscription.

Bharat Kanodia (25:37): Correct. Subscription model. I tell people, say, for example, I am working with a company right now and their model is: hey, as and when the customer needs it, they take it. Which is fantastic. Right now I'm giving them about a three X valuation, but I was talking to the founder and I said, "Look, I mean, right now I know the business is good, but if you can convert your customer into a monthly-paying customer, you might have to take a hit on your revenue a little bit, discount it just so that you can get the customer to sign up for a monthly subscription. But if you sign up for a monthly subscription, then I can give you a eight to 10 X valuation, even though your revenue goes down slightly."

Scott Harper (26:21): Okay. So embedded in this is the willingness to look at your business model and as with the world changes and you can change your business model, think about how you can be more consistent and more transparent and more predictable in the long run, right?

Bharat Kanodia (26:41): Precisely. You want your customer to be paying you on a monthly or a quarterly or an annual basis, some kind of a subscription model.

Scott Harper (26:48): Okay. What's a second idea?

Bharat Kanodia (26:51): The second idea is you want your business to run on autopilot. Now, no business can run 100% on autopilot, but how close to that 100% can you get to? What are the parts and the processes of your business that you can put on autopilot? For example, putting in new systems and processes in place, or hiring people who are very process-oriented. Not everything can be pushed into software, but what can be? Can your marketing be pushed into software? Can your account receivables, account payables, payroll? All the things that can be automated, automate them. And the things that cannot be automated, see if you can find people who are very process-driven so that they can create a process out of that. This is important because if a new buyer is looking into buying a business, they don't want to be coming in and putting in 80 hours a week. They want to be coming in and putting in 10 hours a week and enjoying the same cash flow. And that can only happen if you have systems and the processes in place to service your revenue.

Scott Harper (28:07): Building on that, we've found that in addition to automating, if everybody in the company from the C-suite on down understands the strategic imperatives of the company and the strategic context of what their job is and what they are contributing, not just the work that they do, but the role they play and how they contribute to building the value, they're going to be able to be much more consistent, much more creative, much more contributory to that value. Have you seen that?

Bharat Kanodia (28:42): Most definitely. For example, BMW, their motto is the ultimate driving machine. So everything they do, every part they design, every system they design, every plant they design, every color of paint that they pick comes around to the same thing: does this choice make BMW the ultimate driving machine? Yes or no? If yes, we can select it. If not, no, it's out of the question.

Pam Harper (29:12): This is interesting. I guess that no conversation about the value of top leadership right now would be complete without talking about one of the pressing issues out there, which is the great resignation. And by the same token, it would be this issue of engaging and retaining critical talent. I'm wondering what you're seeing or what you're looking for in terms of that issue.

Bharat Kanodia (29:42): Talent is very important, but from what I have seen is you want to be working hard in retaining talent, but you don't want to be putting out fires to retain talent.

Pam Harper (29:57): Okay, well, we are actually at the end of the episode. Can you leave us with some thoughts regarding valuing your company's top leadership?

Bharat Kanodia (30:09): Marketing and touching base with your audience, with your followers is key. I have learned over time marketing is just a fancy term for staying on top of people's minds. So as a leader, as a company, if there's anything you can do to stay on top of your current customers, your prospects, your followers' minds, that's most important. And that's why you're doing the podcast. That's why I'm doing YouTube videos. And that's why Elon Musk is going to the moon. And that's why Branson is doing all these cookie-crazy things that he does, because he's just staying on top of people's mind. They're just ads, backhanded ads for version. So do what you can on staying on top of people's minds. And if that means writing daily emails, do that, or if that means jumping out of airplanes, do that.

Pam Harper (31:01): Okay. Well, Bharat, thank you so much for being our guest on Growth Igniters Radio.

Bharat Kanodia (31:08): Thank you for having me, Pam and Scott.

Scott Harper (31:12): Thanks Bharat, and thanks to you out there for listening to Growth Igniters Radio with Pam Harper and Scott Harper. To contact us, get show notes and resource links for this week's episode, go to growthignitersradio.com, select episode 200.

Pam Harper (31:25): Until next time, this is Pam Harper...

Scott Harper (31:28): And Scott Harper...

Pam Harper (31:29): Wishing you continued success and leaving you with this question to discuss with your team:

Scott Harper (31:34): As a leadership team, what can we do differently or better, starting today, to think and act more strategically about looking beyond the numbers to add value to our company?

Chris Curran (31:55): Growth Igniters and Growth Igniters Radio with Pam Harper and Scott Harper are registered service marks of Business Advancement Incorporated. All Growth Igniters Radio episodes are copyrighted productions of Business Advancement Incorporated intended for the private use of our audience. Except as otherwise provided by copyright law, all other uses, including copying, editing, redistribution and publication without prior written consent of Business Advancement Incorporated are prohibited. All rights reserved.