Rise of the Small Book – Value as the Fuel for Rise of the Small

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This book is going to be published early part (Jan/Feb 2017). We are aiming to bring it to fruition before the year is up. If you want to pre order, you may make payment at paypal.

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What is Value?

The key to grow a small business to a big one is to understand what is value.

There is one myth about value that I must dispel before going on. There is often an unspoken implicit assumption or belief that value is something objective. This is one of the greatest barrier to understanding value.

I would put forward the point that value is never objective to begin with. All value perceptions and judgments are by its very nature subjective. A girl may value a rose very highly during courtship but any man would not value that rose as much.

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A rose is of high value to the woman because it signifies the intention of the man suitor. The man suitor may only value the rose as merely a tool in the game of courting. To a man not in courting the rose poses no value whatsoever at all.

Even for a man in a romantic relationship, the expense to purchase roses is merely seen as a maintenance expense – an expense that men have to spend unwillingly because women value it, not because men value it.

To conclude the rose example, the only objective thing here is only the rose. Everything else is subjective. The value of the rose is subjective, especially.

Let us talk about a bottle of water. Would you pay a thousand US dollars for it? Under normal circumstances obviously you would not pay a thousand US dollars for it. However, if you are in a desert and you would lose your life without the bottle of water then obviously you would pay a thousand US dollars for it.


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The value of that bottle of water is that it keeps you alive. That is worth more than a thousand US dollars.

The only thing that is objective here is the bottle. Everything else is subjective. The value of the water, as opposed to the water itself, is subjective.

If there is only one thing you remember of value, do just remember that value is not objective and is in fact highly subjective. The value of something is highly dependent on what I can do with it – for example, I can use the rose to court a girl, therefore the rose has value to me.

Easy Take Away : Value of something is highly subjective and it depends on what uses & benefits are derived from it.

Value in the Context of Business

Instead of talking about roses, let’s talk about something that is the main topic of this book – Business.

How would our renewed understanding of value help in our understanding of business?

Let us say I incorporate a company today with a S$ 1.00 paid up capital. What do you think would be the value of the company? Honestly this company would not even worth a single cent. Given that there are statutory fees amounting in the hundreds that need to be paid upon incorporation, a S$ 1.00 paid up capital company is in the red immediately upon incorporation.

For further discussion of more ideas, let’s call this Company, “Raymond Ng Pte Ltd”

If I however use Raymond Ng Pte Ltd to sign a sales contract that is worth S$ 5,000,000 recurring revenue every year, what would be the value of the company? The value of Raymond Ng Pte Ltd would be transformed drastically, even before the first year has ended.

I, as a shareholder of Raymond Ng Pte Ltd, can approach another business operator. I would inform him that this company has this contract, he can just take over the business and run this business with an established sales contract.

If I just want a quick resolution to this transaction, I would agree to sell the business operator at the price of S$ 2,000,000 and he shall take over the running of Raymond Ng Pte Ltd. Immediately I would have a capital gains of nearly S$ 2,000,000.

I can of course, bargain for a higher price given that it is a S$ 5,000,000 recurring revenue every year.

If I approach a big fund manager in the form of a Private Equity. They are probably looking at a business that they can buy but they do not want to take over the running of the business. Raymond Ng Pte Ltd with a recurring S$ 5,000,000 revenue every year would be practically worthless to them. Private Equity or big funds in general, would not value Raymond Ng Pte Ltd at all unless they are sure that they can put in place a management that can take care of the business after they have bought Raymond Ng Pte Ltd from me. Even that, it is a big if.

If I approach a Venture Capitalist to invest in Raymond Ng Pte Ltd. In the process, giving him 25% of the company in return for S$ 2,000,000 into the company. I also would promise him that I would continue to run Raymond Ng Pte Ltd and grow it further with the S$ 2,000,000. As a result of this, I have Raymond Ng Pte Ltd that is valued at S$ 8,000,000 (since 25% of Raymond Ng Pte Ltd is S$ 2,000,000). On top of that, now I have S$ 2,000,000 in the bank account that I can run Raymond Ng Pte Ltd in the best manner I can.

What I am trying to illustrate with these examples is that value is again highly subjective. Depending on my own intention on what to do with Raymond Ng Pte Ltd, and who is the buyer of that value, it can change drastically. The value can change from completely worthless to a Private Equity, to S$ 2,000,000 by a business operator, or to S$ 8,000,000 by a venture capitalist.

In all the above scenarios, the value of Raymond Ng Pte Ltd to myself and the respective venture capitalist, business operator and private equity are all different. Nothing looks absolutely the same. However, upon the confirmation of an agreement, there is only 1 thing common among all parties, the price. Price is the only number that is common in spite of our differences in how we value Raymond Ng Pte Ltd.

As you would soon see in the next few sections, chapters of this book, understanding your own value with respect to the different kinds of financiers is the most important thing. Value is the main driving force behind investment decisions.

Putting investment aside, value is also the main reason how your surrounding eco system would react to you. That can include your suppliers, vendors, service providers, landlords and many more. The overall market would react to you favourably and would support you either in terms of their payment terms, or discounted pricing to you.

I repeat, value is the main driving force behind investment decision and is also the main reason why the market would even support you in the first place. Understanding value and leveraging on it thus is crucial for your business survival and growth.

During April 2016, Tesla received about 400,000 orders for its Model 3. Every order comes with a US$ 1,000 deposit and Tesla has collected a grand total of US$ 400 million. Given that every Tesla Model 3 retails for US$ 35,000 the total revenue to be collected upon vehicle delivery in 2018 would be as much as US$ 14 billions.

For a company that is projected to earn US$ 14 billions, what do you think the value of the company should be?

tesla

In response to general consumer acceptance for Tesla Model 3, value of the company grew from a low estimate of USD 20 billion to a height of USD 37 billion – a whooping increase of USD 17 billion when the collected deposit is only USD 400 million. This increase is illustrated with the upward facing arrow that increases the value of Tesla Motors Inc.

This value increase is validated by actual investors buying the shares of Tesla Motors Inc. Not bad for a company that is going to deliver this purchase 2 years from now.

Let us say that Tesla Motors Inc would attempt to raise funds further from the capital market to fulfill the 400,000 orders of Tesla Model 3, do you think Tesla would have problems raising money from the market by issuing of shares? Present market sentiments seem to suggest that it would not be a problem.

Easy Take Away : I repeat, value is the main driving force behind investment decision and is also the main reason why the market would even support you in the first place. Understanding value and leveraging on it thus is crucial for your business survival and growth.

Actual design of the Book may differ, slogan may differ as well. It would be a book on how to grow a company leveraging on the capital market.

This book is going to be published early part (Jan/Feb 2017). We are aiming to bring it to fruition before the year is up. If you want to pre order, you may make payment at paypal.

buy-now-flashing