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Somdutta Singh, Serial Entrepreneur | Founder, CEO, Assiduus Global | Investor | Bestselling Author | Advisor – Govt of India.
What is the purpose of a business? For some founders, it’s financial success; for others, stability; for still others, running a business offers a sense of freedom. Your priorities can and do evolve over time. For instance, you might need a more accommodating schedule after your company reaches a certain level of cash flow. That’s why the most successful businesses recognize that creating value for customers, teams and investors must be any enterprise’s primary goal and that these groups’ interests are inexorably intertwined. This means it is impossible to create sustainable value for just one group. Creating value for the client should be the main priority, but this cannot be done without selecting, developing and rewarding the proper personnel or providing investors with consistently favorable returns.
In short, success should not be measured by valuation but by value creation.
A business creates value when it can create sustained revenue, ensure a stable cash flow, make a real impact and define an economically beneficial framework that can last for generations.
I like how effortlessly business leader and advisor Robin Sharma expresses his thoughts on this topic. He’s often quoted as saying: “Money is a function of value creation. The more value you create for other people, the higher your organization’s sales.”
Value Creation Is Comprehensive
Long-term value cannot be created by neglecting the needs of your customers, suppliers or team members.
Investing in long-term growth creates stronger economies, higher standards of living and more opportunities for individuals. In other words, focusing on value creation galvanizes progress on a large scale, whether by lifting millions out of poverty, increasing literacy rates or facilitating innovations that improve quality of life and longevity.
As a preliminary step, I advise leaders to prioritize long-term value creation because of its benefits for resource allocation and financial strength. One element of this is taking employee stakeholders into account. A company that tries to increase profits by providing a high-pressure working atmosphere, underpaying its workforce or reducing benefits will find it difficult to attract and retain personnel. Lower-quality employees can result in lower-quality products, falling prices and damage to reputation.
As an entrepreneur, valuation for me is an output, not an input criterion.
Unicorns In India
Let’s take the example of startups in India, and specifically unicorns (privately held startups valued at over $1 billion). According to the 2021-2022 economic survey produced by the Indian government, India has now become the third largest startup ecosystem in the world, with 14,000 recognized startups, up from only 733 in 2016-2017.
Alongside this massive growth in the startup sector in general, India has also seen a flourishing of unicorns over the past four years. The emphasis on unicorns in recent economic stories about India’s startup environment has made me wonder why valuation has become the main criterion for success. Why is there this mindset among startup founders that if they are not racking up a billion-dollars in valuation, their endeavor is a failure?
Paradoxically, many of these ostensibly successful companies have consistently lost money. To me, this exemplifies the idea that while valuation is a useful tool, valuation alone should never be the determining factor for a business.
Valuation Versus Value Creation
The problem lies in the fact that valuation is frequently confused with value creation. Market conditions heavily affect and influence valuation. Even mathematically, two different evaluators can assign different values to the same company. That company could also end up being valued much higher in a particular market compared to what it would have had under other circumstances.
As a result, valuation is an unpredictable and grossly misleading metric.
When a company’s goal is simply to make a successful exit or to maintain its place in the market, it backfires in terms of value creation. The road from startup to mature business is a difficult one. Post-startup businesses often lose focus because they were not truly designed to move forward; their emphasis is only on exits.
Here are some ways to focus on value creation rather than valuation and, as a result, set yourself up for success long past the startup stage:
• Be a maverick and establish something disruptive and distinctive with its own niche.
• Orient critical decision-makers by designing financial and nonfinancial objectives that integrate both short- and long-term value creation.
• Create an interactive business model that generates value over multiple time horizons.
• Integrate KPI dashboards to monitor and encourage progress toward objectives.
• Encourage team members to envision long-term growth for your organization.
Companies that achieve exponential growth while balancing this with other priorities such as cost management and employee benefits and retention create the most value. Entrepreneurs who start and run companies like this know that long-term business success begins with a solid foundation that is built to last.
Business expansion and development is simple to evaluate. Durability is not. Giving in to valuation mania is futile. User acquisition, profitability and forecasts are all essential metrics, but agonizing over them is not the path to building a business that will leave behind a legacy.
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