Recently at a business valuation seminar in the US, one of the presenters, Robert Ranallo who frequently serves as a court-appointed attorney in the resolution of business valuation matters, emphasized the importance of storytelling’s when he responded to a question from one of the audience members.
The question was about business valuation disputes in a court setting, “It seems that the process of deriving the value has more importance than the actual number itself. Does it?” Mr. Ronallo replied, “Yes, it’s the process but the story you tell around it is just as important.”
The process is often too complex to explain effectively in court. Moreover, if both valuators are competent, distinguishing processes is impossible or difficult at best. Even identical processes could produce different values due to differing assumptions or different risk assessments, which will arrive at different value conclusions.
Therefore, “the story” becomes the weaving threads that pull it all together and hold the pieces together. Storytelling paints a picture and overshadows complexity. The story allows others to access the reasonableness of the value conclusion based on their mental picture that has been illustrated by the storyteller. There are many articles and books written about the art of storytelling and the intricacies of weaving key details that bring the story alive and paint a vivid picture
Business valuations exist at the crossroads of the arbitrary and the definite, with a great deal of subjectivity in the mix. People being emotional creatures, crave the definite rather than the arbitrary, and it is the valuators job to provide that certainty when it comes to value. Which by its very nature is arbitrary in an notional context, unless a business is actually exposed to an open market and an arm’s length transaction is concluded.
He went on further to say that, in school, especially in math class, we had to show our work behind our answers. The answer alone only received partial marks, showing our work is telling the story behind our answers. Business valuations can’t just show the answers, we need to show our work and demonstrate the reasonableness of our assumptions.
Mathematics often has definitive answers, business valuations do not. They vary with assumptions and will typically arrive at a value range rather than a definite number. We need stories to justify those assumptions, to make them real. They show that our assumptions are not just figments of our imagination.
Stories explain our assumptions. Assumptions are professional speak for imagination; fiction makes it easy to believe imaginations are real.
If you need some certainty as it pertains to business value please give us a call or send us an e-mail. The initial consultation is free.
Malahat Valuation Group