Let me take you back to the Zodiac story. I showed you this slide already that reflected a bunch of different applications. Those were the good old days. We had this beautiful interactive platform and companies could look at all the different CLVs and draw a circle around them and say "We want to send an email to these customers, with a different email to those customers." It was awesome working with all these different companies. But one of our clients was a very different company. It was a private equity firm and they said, "We don't need your interactive dashboard. We're not interested in sending different emails to one customer or another. We want you to calculate all those lifetime values. But basically, all we want you to do is just to add them up because we're thinking about buying that digitally native men's underwear company. We want to know what is it worth? What we should pay for? Should we buy it at all or not?" This is the idea of customer-based corporate valuation. I didn't invent those words, I'm not the first one in the field of marketing to talk about them. For years, there's been a lot of colleagues who've been saying, "We can look at a company instead of from the top down and say, "Hey, what kind of access does this company have?' We can look at a company from the bottom up, from the customer level. I'm going to go back to something I've said over again. That if we can project how many customers the company is going to add, and how long they're going to stay, and how many purchases they're going to make over that horizon, and how much money they're going to spend when they do that, that tells us the value of the company. Every penny that the company brings in, at least through its operating assets, forgetting about any net debt or non-operating assets. Every penny the company makes, is coming through a customer. If we can project those different kinds of behaviors, project each one out real far, add it all up, that's going to give us a good sense of overall revenue, overall cash flow, overall corporate valuation. We were working with this one company, one private equity firm, add Zodiac. After we sold Zodiac to Nike, we continued talking to that private equity firm. We realized maybe they're not the only one out there. We started a new company, one that we continue to run to this day, Theta Equity Partners, and that's all we do. It is customer-based corporate valuation. Literally, we actually now have a trademark on those words, customer-based corporate valuation. You can't use those words unless you pay me a nickel. We're really starting something new. As it says over here, even though I'm a marketing professor, we're trying to revolutionize finance through customer-based corporate valuation. I'm going to be honest with you. I'm not a finance guy, I'm a marketing guy. I'm writing all these books over here about customer centricity. But what I've discovered recently is that, if I really want an enterprise to be customer-centric, maybe I shouldn't start with marketing. It's easy to win over marketing. I'm one of them, they like my stuff. But oh man, if I can win over finance, if I can get the CFO on board, if I can win over the VP of investor relations. If I can have them understand that these very same Buy Till You Die models that you're learning pretty well now, can apply to them through this idea of customer-based corporate valuation, I can win over finance as well. In fact, I can work on every different part of the organization and find some appealing aspect of our models that will help them do their job better, help them understand the company better, help them manage the future better. But it all starts with finance. That's basically what we're doing. Is we're just projecting how many customers we're going to acquire and then jamming on top of that a Buy Till You Die model to say, how long will they stay, how often will they transact? Then layering on top of that, the Spend model, when they make those purchases, how much will they spend? At Theta Equity Partners, we've been working with a wide variety of different companies, usually investors. Whether it's a private equity firm or some other investor, maybe it's a hedge fund. Now in that case, they wouldn't have access to all of the granular data, which takes us back to one of the model extensions that I was referring to before. That if you don't have all the granular data, but you can get some limited data that either the company is putting out there on its own in its quarterly statements, maybe it's saying how many active customers do they have or how many orders were placed, or what percent of customers are customers who made purchases previously. Different metrics that you'll see fairly commonly out there in the public domain. But usually, people aren't thinking very carefully about how we can take these disclosures and back out the parameters of a Buy Till You Die model. That's what we're doing. When I say we, I'm referring not just to myself, but to my former PhD student, Dan McCarthy. Dan worked with me, he was a co-founder at Zodiac and spent all of his time thinking about extensions to the basic models, as well as how to work them on limited data, and that's really what led to the founding of Theta Equity. Yes, we can work with a company, they can give us all of the data and we could tell them how many customers they're going to acquire, and how long they're going to stay, and therefore what the company is going to be worth. I'll tell you a story. In one case we were working out with an investor but with a large e-commerce company. They said, "We think that we're grossly undervalued by Wall Street. We think that our customers are loyal, they're going to stay with us a long time but that doesn't show up in our balance sheet. That doesn't show up directly in our income statement or cash flow statement. We want our investors to see that." We worked with them but they said, "We have a twist for you. We'll be glad to give you the transaction log data, we have no reason to hide that from you. But we're thinking that we might start disclosing some of these aggregated metrics about number of customers, total orders and so on. We'd rather look at ourselves through that lens instead. We're only going to give you the limited data so to see how we look, because then we'll decide whether it's worth disclosing these kinds of metrics or not." I love that kind of story. I love it that at an executive level, they're thinking of customer metrics, they're thinking about them internally to say, "How are we doing? Are we worthwhile?" Then to be able to take those insights and then toss them over to the folks in marketing and say, "Hey, you want to use this same model to decide which email to send to which customer." But at the same time, using the models externally to be able to go to Wall Street or to other external stakeholders and say, "Look at all of this juicy, delicious customer value that we have over here. You wouldn't see it in the traditional financial disclosures, but now you can see it." It's a very real story. We've been expanding upon that. Dan and I, along with other experts, a big shout out to Rob Markey who's a senior partner at Bain. In fact, some of you might be familiar with some of his work, Net Promoter Score. I bet many of you are familiar with NPS. Rob is the guy in charge of all that. But he recognizes that asking people a question, "Would you recommend us?" It's great, it's terrific, but it's incomplete. Instead, some of these customer metrics, how many active customers do we have? How many purchases have they made? Is a wonderful compliment to the attitudinal question that is Net Promoter Score. Rob Markey, Dan McCarthy and myself, we're trying to spread the gospel to get some of these customer metrics out there. Rob is doing it as a consultant to try to get companies just to be smarter. We're thinking about investors, we want them to make better decisions. I want investors to be pounding on the doors of the companies that they're investing and saying, "You must disclose these metrics so we can do the reverse engineering and we can see what you're actually worth." We've been writing letters to the Financial Accounting Standards Board. You can see a copy of it right here. Very serious about this saying, "In this day and age, with all of this data being plentiful available, companies are looking at it all the time, investors are talking about it informally all the time. Why don't we tighten it up? Why don't we formalize it? Why don't we agree upon a certain set of metrics that should be disclosed. Let's agree upon how they should be measured, what kind of words should be associated with them? What kinds of caveat should we have? What kinds of companies should be encouraged to do it? Which ones would be excused to not do it? Let's have this conversation about customer metrics that's going to make everybody more informed. Companies will get smarter, investors will have a better idea of just what they're working with." Customer-based corporate valuation sounds like something completely different, sounds like something that should show up in a different course. But in the end, it is just leveraging our beloved Buy Till You Die models in just an extraordinarily different used case that can open up so many other used cases as well. That's CBCV in a nutshell. Then what I want to do is just give you just a case study of CBCV in action for you to fully appreciate the power of it and to link back to the models that we've been discussing.
