Author: Jag

Precision of Value

In most part of the world, companies go through their corporate planning exercises, at this time in December, January and February. There are decisions, trade-offs and choices you have to make during this period as many Corporate planning techniques like portfolio planning, core competence analysis, corporate mission statements, value-based management, and parenting concepts will be employed. A good planning process should be focused on creating value. So now its more than ever important to discuss the precision of value.

What is the precision of value? It’s the specifics. Delivering value means you need to produce things in a certain way. This means stepping outside your narrow thought and understand the why’s. Focusing on the elements that’s scarce and valuable , keeps you in the long-term value game. If something is no longer scarce, it’s not going to be valuable for long. This is where society eventually wants to go, and you’ll get paid extremely well with a huge competitive advantage.

Applying the Theory of Constraints

“Find and improve the constraining factor — no other work will matter.”

Eli Goldratt in his book, Goal laid out his Theory of Constraints which states that any system with a goal has one limit and worrying about anything other than that limit is a waste of resources. There is nothing fancy in understanding this but million dollar question is so how do you apply the Theory of constraints for your own success?

Lets decode: What is a constraints? Simple answer: Limits. Thinking in limits is the smartest way to identify and address the appropriate limit.

Phantom Equity

As Wikipedia calls it, Phantom stock is a contractual agreement between a corporation and recipients of phantom shares that bestow upon the grantee the right to a cash payment at a designated time or in association with a designated event in the future, which payment is to be in an amount tied to the market value of an equivalent number of shares of the corporation’s stock.

In layman terms, its a percentage of proceeds or dividends if the company gets sold. But why offer or take Phantom Equity?

Phantom 2

Phantom Equity are offered by Business Owners when they hire a CEO. This is most often similar to Royalty. When a company is already making millions of dollars in revenue, it makes more sense for a business owner to offer phantom equity than equity unless they believe they’ll sell the company in future. If you’re a CEO, and when you take phantom stocks, you don’t actually own the business but you do get many perks that comes out of the equity.

Being a CEO is a demanding job and very stressful, they are many times part of a Bad Dad’s club. If somebody doesn’t understand phantom equity, it is actually a negative incentive.