It's Not Luck - Eliyahu M. Goldratt [88]
“I see.” My sneaky son.
“But then we decided that if that’s the type of argument we were going to use, we would be much better off approaching Herbie’s father. You know that sometimes Herbie succeeds in convincing his father to let him borrow his cherished antiques, and you also know that sometimes it takes a small fortune to repair the damages.”
“So you concluded that Herbie’s father’s need for such a promise is much greater than mine,” I say, relieved. “Did you ask him? What happened?”
“Herbie’s father had a much better idea. He’d already purchased this Cadillac, and the major parts. So he offered us the job of restoring it. Of course, he first forced Herbie to sign that he will never ask to borrow one of his other cars again.”
“And what are you going to get out of it?” I ask.
“Oh, until I go to college I can use it on an equal basis with Herbie. And if we get it running and it goes twenty-five hundred miles with no problems, Herbie’s father promised me a thousand dollars. This way I don’t have to spend my money, I can save grandma’s gift, and I will have even more money to spend at college. How do you like it?”
“I like it.” I like it a lot.
“So you see, Dad, you helped me twice.” Dave summarizes. “Once with the negative branches, steering Herbie smoothly into a real solution rather than a real fiasco. And the second was explaining to me the differences between perceptions of value.”
“Good job, Dave. You really put it to use nicely. You even pushed the concepts further. When I was talking about the suppliers’ and markets’ perception of value I was talking about companies producing products on an ongoing basis. You applied it to one-shot deals. And you’re right. It works there as well. Come to think about it, it should work for any sale.”
“Including the sales of your companies?” Julie jumps in. “They are each a one-shot deal.”
“No,” I reply. “Here the rules are rigid.”
“What rules?” Dave is interested. “How do they determine the value of a company?”
“It’s quite involved, but basically, you look at the net profit of the company and multiply it by the profit/earnings ratio for that type of industry and you have a good starting point. It also depends on the assets the company has. That might modify the picture.”
“But that’s purely based on the perception of value of the supplier,” Dave insists. “You are only looking at the company. It’s like looking at the product, rather than the needs of the buyer, Dad.”
“You have a point. But that’s how it is done.”
“Not necessarily,” Julie interjects. “Not according to what you’ve told me about Stacey’s company.”
I think about it. She’s right. If you look at Pressure-Steam in isolation, the value is very low. But when you look at a particular buyer—a very particular buyer, Stacey’s competitor—in regard to his needs you get a totally different number. Four times higher.
I raise my eyes and look at her. “Julie, you are right. Maybe we are going about it in the wrong way. Maybe we can get much more for Pete and Bob’s companies if we look at the needs of the potential buyers. But what do I know about their needs? Nothing.”
“Well, who are the potential buyers?”
“For Pete it is large companies in the printing industry. For I Cosmetics, we are approaching a much wider spectrum. The real experts on it are Brandon and Jim. I’ll have to talk to them.”
“Alex,” Julie continues, “you must know something about the printing industry. Last year you spent a considerable amount of time at Pete’s company.”
“Yes, I did, but . . .”
She waits a minute, watching me. “Well?” she pushes.
“When I got Pete’s company it was a good representative of the industry,” I admit.
“Which means what?”
“Everything was run in order to save costs. Not real operating expense, but cost-accounting costs. You can imagine the results, I’ve told you