Narrative and Numbers
Aswath Damodaran
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Buy *Narrative and Numbers: The Value of Stories in Business* by Aswath Damodarano nline

Narrative and Numbers: The Value of Stories in Business
Aswath Damodaran
Columbia University Press
296 pages
January 2017
rated 5 of 5 possible stars

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For viewers of CNBC, author Aswath Damodaran should be a familiar figure. A chaired professor at New York University’s Stern School of Business, Damodaran is an expert on valuation. As privately owned companies such as Uber and Airbnb validate their distinct business models by becoming mainstream businesses, there is frequent speculation as what their valuation is as a company. While including quantitative metrics, such as size of fleet and number of rides per day for Uber, valuation includes a significant proportion of non-scientific, non-quantitative conjecture. A company’s valuation may vary widely depending on how the quantitative and non-quantitative factors are used. Damodaran’s book focuses on the non-quantitative parts of valuation--the importance of the business’s “story” that adds to the company’s allure and, eventually, to its valuation.

The book’s approach is prescriptive, in keeping with Damodaran’s day job as a teacher. He makes plausible arguments for building the narrative to augment the quantitative underpinnings in order to elicit a higher valuation. Using examples of now-public companies such as Twitter and Facebook and those of private ones such as Uber and Brazil’s Vale, he makes a strong case for how the narrative complements the quantitative in valuation.

Of course, a compelling narrative that is bereft of a strong business foundation is of little use. Damodaran also recounts the cautionary tale of Theranos to underscore the importance of a strong business model to augment a striking narrative. The story of a (then) 19-year-old Stanford undergraduate, Elizabeth Holmes, founding a company that would more efficiently do blood diagnostics was compelling. The narrative helped Holmes get substantial funding from venture capitalists. But the narrative (and the company) fell apart when it became clear that it had very little link to reality. The cautionary tale aside, Damodaran offers a well-researched case for entrepreneurs working on developing an attractive “story” for their business to have it valued higher.

Originally published on Curled Up With A Good Book at © Ram Subramanian, 2017

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