A New Business Value Framework for the Digital World

Valuing a business in the past was easy. We calculated assets and liabilities and subtracted the difference. Intangibles, if there were any, were a minor item ; goodwill from paying more for a business than its tangible assets. Often such nebulous assets were viewed as doubtful and treated with suspicion.

Today it’s the reverse. The list of intangibles has skyrocketed and gone from bad to great. Culture, talent, mindset and vision have exploded in value. How transformational is the business? How likely is it to thrive in a rapidly changing world? Even loss-making businesses can enjoy great valuations if transformational while more traditional, profitable ones see theirs disappear.

But intangible assets are hard to measure. Valuation becomes more subjective. There is no common framework. With real-time markets the slightest soundbite can take millions even billions off stock prices without taking other factors into consideration.

All businesses seek longevity. The goal of any digital transformation is to create a sustainable business – one that thrives and survives long-term.

We tend to think about sustainability in terms of climate control – how do we put more into the planet than we take out. But the concept clearly applies to business as well. Not surprisingly more and more businesses are realizing it’s not just about reducing carbon footprint but about using all the resources available to create a sustainable future.

What does sustainability encompass – clearly diversity and inclusion – optimizing the best talent wherever it comes from and including it in the voice of the company.

Therefore sustainability is no longer a moral imperative, it’s an economic one as well. Successful businesses need not only financial goals but social ones too. They need to invest in their intangible assets as much if not more than their tangible ones. They also need to make that investment transparent so that stakeholders understand the direction the business is going in and can assess its chances of success.

We need a new framework for business valuation – one that recognizes the greater role played by intangibles. The more data we can capture on these assets, the easier this will be. But that may require greater standards of transparency, as well as a new way of measuring intangibles and a willingness to share our strategy for sustainability with a wider world.