Last week I began this thread by discussing the three challenges we’ve seen good companies encounter time and time again – the very problems Ironheart Corporate Advisory was founded to solve.
Here’s a look at Extraordinary (Challenge) #2: Tapping into Unrealized Value
Finding new value can be elusive, and because of this there are categories of companies purpose-built to mine new sources of value.
On one end of the spectrum are the largest corporations, with well-developed R&D shops focused on new innovations that can spur revenue and enterprise value.
On the other are the earliest stage companies with an ephemeral vision of extraordinary value on the horizon, the financial backing of moonshot-searching VCs, and a fervor to turn water into wine. Some do. Most don’t.
There are a few hybrid creatures with characteristics of both the behemoth and the future-chasing tech company – like Alphabet – which uses the freakish margin production of Google to finance an institutionalized approach to mining and monetizing the next big thing.
Outside these encampments are legions of good companies, farming well. They are ‘farming’ well in the sense that they are cultivating a revenue stream or two.
Like all good farmers, they are continuously innovating in both subtle and profound ways in order to increase revenues, lower cost of production, or differentiate from their competitive set.
Their risk is that their extraordinary gets lost in the daily, ordinary routine of farming.
The risk is that their ability to put an exponent onto their value creating efforts never fully materializes.
This is where we work. This is where we get jazzed about identifying, tapping into, and extracting value from assets that are otherwise obscured by the ordinary.
Most recently, we spun the software assets out of a traditional healthcare company, built a corporate engine around those assets, repositioned the assets into higher growth market segments, and increased enterprise valuation by 10x in 14 months. We took an asset that had been ‘farmed well’ for a decade, and put it on a new high-growth and purpose-built chassis that captured this elusive exponent for value creation.
[In a more exotic illustration, a decade ago, I led an engagement to sell spectrum for a country on the tail-end of a war. Its spectrum had never been commercially licensed before. The asset value went from zero to over $300M in revenues for the country in 11 months. Again, exponential value creation by mining under-valued assets, albeit in the chaos of nation-building.]
The process for ‘exponent mining’ looks like this:
We start with the internal team – the engineers, sales, marketing, customer support, and other key people involved in the ordinary course of farming – to identify possible sources of new value creation. New software code. New processes. New widgets. Then, we do a first cull.
We sketch out potential use cases, distribution pathways, investment requirements, revenue streams, corporate vehicles, and transaction structures for extracting the value of the asset. Second cull.
We vet the candidates with accountants, consultants, investment banks, and lawyers to better understand the financial, tax, regulatory, legal and technical considerations (or impenetrable barriers.) Third cull.
We refine the models and forecasts, test the theses with experts, socialize the concepts with those that can become part of a plan to extract value. Fourth cull.
We support or lead the execution of the now fully-developed plan.
This is where good companies farming well – those that fall between the behemoths looking for 2x to 3x returns, and high-flying ventures looking for 10x or higher returns – go mining for exponents to their value creation efforts which can yield 4x to 6x returns.
If you are working to save the extraordinary from the gravitational pull of the ordinary, contact me at firstname.lastname@example.org.
Extraordinary #3 coming soon.