Do You Understand Value?
By Neil Scroxton, Managing Director and Founder at Scroxton & Partners. In this article, he talks about what is behind the notion of value.
What is value? In the construction industry, we profess to understand value with such confidence, yet it seems to trip us up on a regular basis. The problem, as I see it, is that value is both a noun and a verb. It transcends from the intangible to the tangible and therein lies the fix.
Value, in itself, is not cold hard cash yet we want, nay we need, to capitalise value in order to make a profit, and #profitfrickingrocks, right? So, when one person’s value is another’s risk, how the hell do we square the circle?
In these difficult times (I will be glad when that prefix is put to bed for a few years again), questions around value have never been so important. I had the unpleasant task of arguing over what another company was ‘worth’ with its business owner this week and it was clear that we understood value to be two different things. With one of us looking to the past and the other focused on the future, it was going to be very hard to agree on the common knowledge that would shift value from ‘something of worth’, to ‘something that is worth’.
In the same week, I had a disagreement with a RICS surveyor about a valuation produced for a residential property. Their assessment of the market value was ridiculously low, but they wouldn’t shift. In the end, and to prove the point, it was marketed at their low value, and within 3 hours there were 40+ viewings booked, 3 offers without viewing and another 3 offers from viewings that had been quickly squeezed in that morning.
When loss aversion is in the driving seat, it is the ‘seller’ that needs to establish the mitigation measures to ensure that risk-management does not overtake the value-capitalisation calculation. In my first example, the seller of the business could not grasp that a company’s past performance does not matter if you cannot demonstrate it has a future. After all, even the finest of wines goes off if you don’t invest in its upkeep. Whereas, in the second situation, the surveyor had not considered that capitalising value is rooted in the ‘here and now’ and requires an understanding of today’s trends, sentiment, scarcity, competition, etc. which can change quicker than the data. So, the onus was left to us to prove it… and prove it we did – Architect 1, Surveyor 0!
And what of the value of a service? With such a burden of proof required to demonstrate the monetary value of a transferrable asset, how do we capitalise the difference in value of one professional to another? Is there a difference? Unless we literally run two identical projects, one with ‘service A’ on and the other with ‘service B’, can we prove there is something clearly tangible to our valuable efforts?
God only knows, I’m just an architect and I’ve been struggling with that question for over 10 years now. Although, I do think that the key word of my ramblings above is ‘transferrable’.We, the professional, must clearly establish that we transfer something to the purchaser that is more than just pretty pictures. We transfer knowledge, and knowledge mitigates risk, and risk mitigation improves the capitalisation of transferrable assets, and that makes profit, and #profitfrickingrocks, right?
——
