Executive Summary

Social Media is Creating a Revolutionary Force of Highly Connected and Empowered Stakeholders. Social media is empowering the former silent majority to: 1) influence, expose, and disseminate their views; 2) self-organize and join forces on a common cause; and 3) create new communities to enable learning, collaboration, and co-creation.

A Greater Purpose Leads to a Stronger Stakeholder Ecosystem. We visualize the stakeholder ecosystem of a company like the root system of a tree, comprised of: 1) the seed – represents the ethos of the company and its purpose, or reason for existence; 2) the soil – represents the company’s core values and culture where the seed is cultivated; and 3) the roots – represent the community of the company’s customers, employees, and business partners, which reside in the soil and sprout from the seed to form the stakeholder ecosystem of the company.

A Greater Purpose Leads to New Value Creation Opportunities. Social media is leading to the growth of secondary root systems as new relationship domains of consumers-to-employees, employees-to-partners, and consumers-to-partners emerge. Enlightened companies with a greater purpose will find themselves in an enviable position as they will be able to form communities that will allow them to access the following new Social Capital value creation opportunities: 1) advocate – benefit from the positive network effect resulting from word-of-mouth and interactions between and amongst its stakeholders ; 2) learn – use social media platforms to dynamically and interactively reach out to stakeholders to build learning communities focused around the passion for its greater purpose and the products/services it offers; 3) collaborate/co-create – social platforms create a new, open forum for participation, facilitating different forms of collaboration and co-creation ranging from user-generated content to idea generation to open-source to crowd-sourcing to mass customization.

Tremors in Stakeholder Ecosystem Will Shift Companies’ Underlying Risk and Growth Profiles. The new Social Era will create a high level of fragility for companies who derive their competitive advantage through exploiting their stakeholders, leading to a higher than expected risk profile and lower than expected growth profile. In contrast, we expect the risk/growth profile of antifragile companies to improve as their individual risk factors decline and they capitalize on social media to grow their corporate ecosystem by attracting a high caliber of consumers, employees, and partners who believe in their greater purpose and are seeking to align their values with those who they buy from, work with, and do business with.

Introducing a New Valuation Framework for the Social Era. We expect the Social Era will result in a shift in companies’ risk and growth curves based on a function of their Social Capital. Based on our simple DCF (Discounted Cash Flow) model (Net Present Value = Free Cash Flow/(Discount Rate-Growth Rate), we calculate a mature company (producing $1.00 in free cash flow per share) would have an implied valuation under the following scenarios: 1) base case – assume 10% discount rate & 2% growth rate: $1.00/(10%-2%) = $12.50; 2) company with Negative Social Capital – assume 12% discount rate & 0% growth rate: $1.00/(12%-0%) = $8.33; and 3) company with Positive Social Capital – assume 8% discount rate & 4% growth rate: $1.00/(8%-4%) = $25.00.

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