Banking Your Vision: How to Calculate a Monetary Value of a Vision
Companies with a strong and compelling vision show 20-30 times higher market value than companies with just a great product. For instance, Tesla attained a $1.25 trillion valuation which exceeds all other major car producers combined. Such capitalization is greatly bankable because of Tesla’s vision to create a new standard of mobility and service.
What is a secret formula of those who know how to lead the game?
How to bank your vision
Vision is pragmatic and functional, otherwise it is a dream or illusion only. Therefore, the outcome of a vision can be calculated, reflected on a balance sheet, presented to investors or financial institutions, and so, is bankable.
Based on John Spence’s and my practical experience coaching and training clients from different industries worldwide, a monetary value of vision is calculated based on three elements – tangible outcome, intangible outcome, and strategic benefits.
Tangible outcome
The vision reflects a value created for customers in the course of their lives that is supported by a quick response when people recognize and appreciate that value. In other words, a vision defines the size of the market niche that a company will control over an extended period of time. Amazon controls more than 40% of the market share, making it the most prominent retailer globally.
Control over the growing market niche can be evaluated at 100% of the capitalization projection.
At the same time, vision stands on simplicity and clarity. That simplicity defines how many fewer resources you need to achieve more or to gain more with less.
The clarity of a vision defines the efficiency of execution, which adds at least 30% to capitalization.
Thus, the tangible outcome is calculated at a whopping 130%, at least.
Intangible outcome
There are two core elements of the intangible outcome every leader should consider when thinking of the vision – improved engagement and people growth.
People want to work for something greater than they are. Vision has tremendous power as it is greater than any person or business itself. At the same time, a true vision encourages ownership of it in others, as they own the results of the vision.
The strength of a vision is seen in the high engagement of all stakeholders who commit themselves to the greater good. For instance, the engagement rate of WD-40 Company is 96%, where 520 employees built the company capitalization to $3.5 billion.
Engagement of loyal employees adds another 50% to the value of the vision.
Success in the marketplace is defined by future-ready people and their advanced competencies. These come into play when we think of innovation, the ability to manage complex tasks and think into the future being prepared for change. Businesses must reinvent themselves again and again to master the future. This is the key to sustainable success.
Growing great people adds at least 20% to capitalization as people and their capacity for growth define tomorrow’s success.
Also, one of the greatest challenges for leaders at all levels is effective succession. The pain of succession gaps costs companies up to 30% every year. In turn, vision is a great legacy that is passed between generations of employees which secures seamless succession. Yet, we do not taking this into the calculation.
When summed up, the intangible outcome of a strong vision can be calculated at 70%.
Strategic Benefits
If a vision is a collective understanding of where in the future we want to be and how it will look, then a strategy is a team agreement and focused execution of how to get into the future in the most effective way.
Enhanced strategic benefits allow exploring new opportunities large enough to make a huge difference and change the rules of the game. Microsoft has transformed from a business model based primarily on selling products, licensees (IP), and devices to a cloud-based platform-as-a-service business. Siemens made strategic shift from energy and industrial manufacturing to digitalization and won.
So, an effective strategy linked to a vivid vision is about winning in the marketplace and provides an ultimate competitive advantage that can be estimated at an additional 40% to market value.
Focus that a vision brings helps to enhance operational efficiency and effective resource utilization. Focus is a great tool in the capable hands of visionary leaders allowing them to perform beyond the ordinary. A clear, vivid, and well-communicated vision and strategy for growth driven forward by a culture of disciplined execution and accountability has no place for illusions or empty promises. Superior operational efficiency piles up an extra 20%.
Vision enables profound and effective decision-making that helps to navigate uncertainty to the desired destination. When people are free to know where to go and what they aim to achieve, they generate incredibly valuable ideas and make well-balanced decisions. They realize that their decision must generate solutions and value, not more problems, and direct their thoughts and actions accordingly. Enabled decision-making can be estimated at an additional 10%.
In total, strategic benefits can be summed up to 70%, or even more.
Expected Duration of Outcomes
Long live the vision! The vision makes the expected duration of outcomes go a long way, beyond the ten year horizon. Thus, vision works as a great multiplier for all the mentioned factors.
Equation
The capitalization value of the vision can be calculated by using a simple equation (Tangible outcomes + Intangible outcomes + Strategic benefits) x Expected Duration of Outcomes = Monetary Value of Vision
Or, by using the estimations provided, we can say:
(130% + 70% + 70%) x 10 years = 2700%
For instance, a company with a $100 million turnover that invests in the vision should expect growth of approximately 27 times in ten years’ time horizon reaching $2.7 billion. In other words, to make a leap, companies need to have a compelling vision that will allow them to cross the line.
Of course, this is a guide only. Yet, realistically, companies with a strong and compelling vision have 20-30 times higher capitalization. They invest in their vision and make their people co-owners of their vision first as a chief investment.
The greatness of your success depends on the greatness of your vision. Vision allows a leap to a Super League of business. What is the capitalization value of your vision? Does it allow that leap?
Written by Dr. Oleg Konovalov.
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