We’re Getting Dumber from Berlingske’s Guld1000 List

Be careful when you fall in love with Berlingske’s Guld1000 list. It doesn’t really say much about who the truly strong companies are.

Lars Fruergaard Jørgensen from Novo Nordisk is the image of perhaps Denmark’s strongest company right now. We need to think carefully about what Berlingske’s Guld1000 list actually shows, argues the author.

It’s a bit too easy to create a list ranking the country’s companies by revenue.

Most people can quickly put A.P. Møller – Mærsk A/S and Novo Nordisk in the top ten of such a list. And we can also be surprised when some electricity traders suddenly enter the top ten because electricity prices skyrocket.

Suddenly, we’ve created an image that Denmark’s strongest and largest companies are measured by their revenue.

That’s dangerous and problematic.

The name Guld1000 suggests that the number one on the list is the most valuable, but that’s not the case since Novo Nordisk, as number seven on the list, is twenty times more valuable than Mærsk. So, when assessing the strength of our companies, we must dig a bit deeper and ask some different questions.

The most interesting word isn’t revenue or market value. In reality, it’s the companies’ resilience. That’s what we need to consider when we look across the business world and at Berlingske’s Guld1000 list. It’s what the business world needs to think about.

Not All Revenue Is Created Equal

Resilience as a strategy is based on the idea that not all revenue contributes equally to making a company future-proof and valuable. The effort required to increase predictability—and thereby the resilience—of your revenue is often a better investment than simply chasing pure revenue.

When assessing the value of a company’s revenue, we can divide it into three categories depending on its predictability:

1. Secure revenue: This is revenue that is guaranteed for at least the next 12 months. It could be annual licenses and subscriptions, prepaid deliveries, or guaranteed revenue in framework agreements and contracts. The definition of secure revenue is that regardless of what happens, the customer is legally obliged to pay.

2. Predictable revenue: Here, we don’t know exactly which customer will generate the revenue, but based on our insights into customers’ budgets, the number of customers, and their historical behavior, we can estimate revenue in this category with a deviation of 20–30%, even in uncertain times.

3. Variable revenue: This type of revenue is the hardest to predict. It typically comes from new customers in our pipeline or from new projects or services with existing customers that we didn’t know about at the start of the year. For many companies, the vast majority of revenue falls into this category.

A valuation of a company will often be closely tied to its combination of these three types of revenue. For secure revenue, the valuation is often close to 20 times earnings before interest, taxes, depreciation, and amortization (EBITDA). For predictable revenue, it can be ten times EBITDA, and at the other end, variable revenue is often valued at a multiple of five or less.

Think about that. When we see electricity traders or grain dealers suddenly seeing their revenue explode because of inflation, we perhaps shouldn’t be too impressed by that revenue. Instead, we should be critical.

You might argue that if you have no desire to sell your company or the shares of the company where you keep your savings, why should you care about resilience and thus the quality of the valuation?

Paying More for Better Revenue

The simple answer is that if a buyer is willing to pay up to four times more for your company if its business model is based on secure and predictable revenue, then the resilience that secure revenue implies should also create value for you as an owner or shareholder through long-term, stable, and predictable earnings. You would probably rather own a share of Novo Nordisk than a share of an electricity trading company.

How Do We Create Resilience?

The core of resilience as a strategic approach is that by improving the predictability of the company’s revenue, we increase the company’s long-term stability and thus its value. By creating more predictability in revenue, we can increase the value of the company more than an equivalent investment in sales that generates new variable revenue.

When new budgets are made, business leaders are often extremely focused on revenue growth, especially in times when costs are rising. The knee-jerk reaction is that increasing revenue should compensate for the rising costs, even if market developments don’t necessarily support that.

From the standpoint of resilience as a strategic approach, we will shift our focus and spend more energy on improving the predictability of our existing revenue—and in that way, increase the value of the company.

You can work on this systematically, for example, by focusing on delivering services instead of products, by aiming for licenses and subscriptions instead of one-off transactions, by

getting customers to pay in advance, or by entering binding agreements about business volumes in exchange for discounts.

Lack of a Good Alternative

I shake my head a bit when I hear all the fuss about the Guld1000 list because it’s my job to make companies strong by increasing their resilience and thus their value. On the other hand, I must also admit that I have a problem when I criticize Berlingske’s list. Unfortunately, there isn’t a Guld1000 list of Danish companies’ resilience. Now, that would be truly interesting.