Way back in 1989, I wrote a memo entitled “The ABZs of Solid Valuation Conclusions and Reports.” In the mid-1990s, shortly after Al Gore invented the internet and email addresses were a new thing, I updated that memo in the form of an audio tape, which we sold as a self-study course. Yes, I said an audio tape. Hey, it was the 1990s.
While visiting my vacation place on the Halifax River in Port Orange, I pulled the ABZs material out of (digital) mothballs. Reading it, I rediscovered some really good material. It is so good, in fact, that I plan to write a series of posts talking about elements of good valuation practice based on this material I wrote more than 25 years ago. The basics don’t change. Those that prepare valuation reports as well as those that hire business appraisers should benefit.
For now, let me share a few excerpts from the mid-1990s version of “The ABZs of Solid Valuation Conclusions and Reports” which was written for business appraisers. This is a bit like opening a time capsule.
- The internet was not well-developed. As I said, “You [business appraisers] should be exploring the internet as a communication and business tool. If for no other reason, use it as a way to gain access to e-mail. A growing number of your clients and referral sources already have internet addresses, either directly or through on-line services. As with the explosion of the fax machine, we will all be connected to the internet within the next few years. For example, you can write to me at email@example.com [our original url]. In the very short run, get an internet address on your business card. Those who don’t have one will be impressed and probably a little jealous.” It was a different world in the mid-1990s!
- Absolutely, Positively, Overnight! “Federal Express coined the phrase, Absolutely, Positively, Overnight! What is important in the high value-added small package delivery business? Federal Express knows, absolutely. If we as business appraisers can figure out what is important in a business, we can look at how a subject company is doing with respect to the key elements that drive that business.” I’m struck by that because there are a couple of generations of folks now who have probably never heard that FedEx branding statement – much less that the name “FedEx” originated from “Federal Express.” I still think it is one of the best and most memorable brand statements ever.
- Information was hard to find. “If you realize there is information from an unusual source that can help solve a valuation problem, move heaven and earth to get it. Right now! Don’t wait until your back is to the wall when you know the answer is out there. Go get it!” When the information we needed came from physical sources, we had to allow lead times for finding the source(s), acquiring the information, and having it shipped to us, often by Federal Express.
- Personal productivity thoughts. “If you are young in your career as a business appraiser, it is a good idea to have and to be continuing to develop good personal productivity skills. If you are older, you may have decided it is too late, but the same advice goes for us. The outline for this course is being prepared on a Hewlett Packard Omnibook 600c, a 3.8 pound, 486-50 megahertz machine that I carry in my briefcase most of the time. I can type at least as fast as I can think, which might not be saying much….”
- Before the explosion in valuation literature. “How comfortable are you with build-up methods for developing discount rates? Nearly all business appraisers use some form of the Capital Asset Pricing Model to develop discount rates and capitalization rates. If you don’t understand how to build a capitalization rate, see my article on the Adjusted Capital Asset Pricing Model in the December, 1989 issue of the American Society of Appraisers’ Business Valuation Review, or see the discussion on capitalization rates in our book, Valuing Financial Institutions. There have been several more recent articles in Business Valuation Review regarding aspects of the basic build-up methodologies. There are also excellent discussions on developing capitalization rates in Shannon Pratt’s (and Reilly and Schweihs) Third Edition of Valuing a Business and in Jay Fishman’s (with Pratt and others) Guide to Business Valuation.” Shannon Pratt did not publish the first edition of Cost of Capital: Estimation and Applications until 1998.
To those younger readers that don’t remember the early days of the internet, I will provide a bit of perspective by way of the evolution of my firm’s website. We registered the domain name bizval.com and created our first site which can be found on the WayBack Machine here. By 1998, it had evolved somewhat, but now looks incredibly dated.
Currently, the Mercer Capital website is www.mercercapital.com. It has evolved considerably.
The ABZs ended with a bit of advice of sorts that is still applicable today.
Remember this: If you are standing still, you are falling behind.
So ends my little walk down memory lane. I hope that readers find it interesting. When I revisit the ABZs, it will be with the added perspective of the last 20 years of grappling with the business of business valuation and growing in the process.
Speaking of history, I wrote Quantifying Marketability Discounts in 1997. The QMDM in its latest version is still alive and well and available for your use.
Question. If you are one of my “older” ones, will you share something from the formative years of business appraisal that might be of interest to the “younger” ones?
May you all be well until the next time,
My two most recent books are available in an Ownership Transition Bundle. The bundle, priced at $35 plus s/h, has been attractive for many business owners, appraisers and attorneys.