Last week’s conversation about big data valuations, in general, and BizEquity, in particular, stirred up quite a few thoughtful emails from y’all.
So much so that this week I decided to (1) break down your (lightly edited) responses into the six general categories they fell into (in italics) and (2) respond with my thoughts (in blue).
For reference, here is the original Entrepreneur.com article that we’re talking about.
And if you’re new here, welcome aboard. This is what we do!
The question I ask when I start every post is the same: will this help you grow your practice in some way. That, and does it pass the “So what” test.
Your Responses – Category #1
Those numbers are ridiculous!
At the risk of sounding like a Luddite with my head in the sand … 200 million small businesses to value? I don’t think so.
One thing that jumps out at me immediately is that based on the research I recently did, there are a total of 27 million closely held businesses in the US, and of those, only 12 million have employees. So, how have they managed to value 33 million companies?
Many of you picked up on BizEquity’s large numbers right away. But if you read the article closely, you’ll see those are global numbers of businesses and valuations, not US numbers. And if you head to BizEquity’s website, you’ll see they have offices in Philadelphia, London, New Delhi, and Singapore.
So this guy has supposedly done between $66 million and $132 million, taking his matrix times the McDonald’s-like counter? That’s one heck of a claim.
Yes, that is one heck of a claim. But it’s not one guy. The website says BizEquity uses a network of business appraisers … maybe even one of your colleagues who is keeping mum about the arrangement.
Also, BizEquity has quite a formidable sales and marketing team. And its board of directors and advisory board members aren’t slouches either – you might have heard of some of them.
Your Responses – Category #2
The valuations or the reports, or both, must suck!
Hopefully, most small to midsize business owners recognize that the result is only as good as the input and analysis of the input. I bet the reports are garbage.
Have we seen their reports? What do they get in addition to a report/number? Are they identical except for “insert your value here”?
I’ve signed up for one of their demonstrations. This is what I’ve done with others and it’s there where the rubber meets the road. It’s very difficult to boil the unique characteristics of a closely held business into a one-size-fits-all valuation. They all look great until you get to the discount rate, discounts for lack of marketability, etc.
The big data concept falls into the category of “you get what you pay for.” I’m sure BizEquity provides some blind mechanical calculations that are informative to someone who is clueless, but which are generally worthless in a negotiation.
Ok. Has anyone actually reviewed one of BizEquity’s reports? Or are we guessing … or hoping that the reports must suck?
Returning to BizEquity’s website, it appears that most – if not all – of the scope of work performed are calculation engagements and the deliverable is a calculation report prepared in accordance with IBA professional standards.
Also, I have not heard of BizEquity being sued for not delivering what they promised. So I would say that these businesses are getting exactly what they want for what they need … our chagrin be damned.
And those important people on BizEquity’s boards? I don’t believe they would let their names and reputations be associated with any sub-par, ethically-questionable operation.
Your Responses – Category #3
Where is our industry support?
I have found that these small business owners are the least able to interpret what we do and the implications of what a report is saying.
Couldn’t the same be said about small business owners and their companies’ financial statements, tax returns, and general bookkeeping? Yet, I am not seeing big data invade that turf (cloud-based solutions, however, yes).
Credentialing organizations do nothing to help professionals get business. I see them only as a forced and increasing cost to do business in a declining industry.
And it’s why I said last week that it is up to each of us to educate our clients about the services we provide, ESPECIALLY because the AICPA, ASA, IBA, iiBV, ISBA, NACVA, and RICS perform no public relations work on our collective behalf.
Your Responses – Category #4
Specialization won’t bolster fees!
It seems to me that business appraisers are in denial. The reality is that our industry is a price-taker. Prospects determine the price of our services, not our expertise, experience, or credentials. And prospects will not determine the price of our services based on the pain threshold of the problem we are solving for them but on the prices of other business appraisers in the market.
You [i.e., Rod] often suggest that firms may be better off if they specialize by industry. I find that while this works in the M&A field, it does not really work in the valuation field. Clients prefer low fees. That’s it! Even if you specialize, a lower-priced firm that can state they have provided valuation services for one or two companies in that industry still has a better chance of getting retained than you.
I specialize in the cross-section of tax purpose valuations and manufacturing/distribution clients. I have plenty of work to keep me busy even though I am never the lowest cost provider.
Have you committed to specialization – either by practice area or industry niche? If you haven’t, I recommend you call a colleague that has. I think anyone in the healthcare industry would be a great place to start.
And if anyone specializes in an industry and loses out to a firm that has only valued one or two companies in that industry, their market positioning efforts/abilities are to blame.
Finally, if you believe what you say, why are you still in the business of business valuation? Save yourself before it’s too late and find another career! (But I’m not going anywhere.
Your Responses – Category #5
What business are we in?
For some time I’ve adopted the mentality (and marketing) of not being in the appraisal business but in the advisory business. I think you’re right that “valuations” are going to be automated, and we need to make our expertise a compelling strategic asset.
I am not a futurist, but otherwise – yes! Look at minor league baseball … when it comes to filling the seats they are in the family entertainment business, not the baseball business.
Like you [i.e., Rod] constantly point out, we have to find our niche and sell value, not just valuations. Of course, erecting barriers to entry, like the CEIV credential, is also good to prop up fees against robots and back offices in Bangalore. Competition is warfare, and whoever said anything about fighting fair?
I think the CEIV is a bad idea and will end up producing more mechanical valuations that employ only generally accepted “best practices” and discourage innovation – how does a new practice ever become a best practice?
Fair is the only way I know how to fight … anything less will impugn the reputation I have worked hard to build. And the fact is that we don’t have to fight. There is enough work out there for all of us if we would only realize it … and ignore the low-hanging fruit – like phone inquiries that start with, “How much do you charge to value x?”
Your Responses – Category #6
Here’s my (your) version of reality.
People are ignoring this change in the landscape, and have been for a long time.
In my opinion, the reality is that this is no longer an attractive business and will only get less attractive.
Inevitably there will be buyers who blindly buy into big data valuations. There have been other online valuation solutions that have come and gone. It may take a while, and will inevitably cost some of us an opportunity for legitimate engagements, but hopefully, we will be the survivors that are adding value for our clients in the longer term.
Hopefully, it will be a world where there is room for the Morton’s/Ruth Chris/ et. al steakhouses to coexist with the McDonald’s.
We can’t solve all client problems; neither can BizEquity. Niche services/solutions scream out from the continued pressure from lower cost providers. BizEquity is here and they’re not going away. As practitioners, we have to find the situations where we are a better fit.
Yes to all of those thoughts.
In real life
I can’t stress this enough: an hourly rate times a number of hours is not going to equal the value of the service we provide to the client. Think about that the next time you quote a fee.
Also, not every client solution requires a Mercedes when a Kia will do. I think BizEquity provides the Kia.
And if you have a concern about your credentialing organization’s lack of participation in helping us get the work, call them. How many cost of capital, discount, pass-through entity, etc. sessions do you need to attend?
Tell them you want courses in marketing skills. Because those skills are more likely going to determine your long-term survival in this industry. (And – shameless plug – you know I offer coaching, right?!)
If you spent more time working on your practice instead of in it, what strategies, tactics, and tools should you adopt to compete in this brave new world?
Hoping that BizEquity (and its ilk) will go away is not a strategy.
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