In our M&A work – helping clients with a potential transaction, the main focus in “Stage One” is Value. “What is the value of the business?” is the first question from both buyer and seller’s perspective. So, let me clear that up for you once and for all with this answer….“it depends.”
Fortunately (if you are into adding value), this answer cannot be answered with a simple metric or multiple of Gross Profit or EBITDA. It completely depends on the unique characteristics of BOTH the buyer and seller, in combination. We all know buyers do not want to pay for synergies they bring to the table, but they will pay for the value associated with the business, which we can influence directly.
So how can we increase the value of our business today?
There are many ways. The best measurement of value, in our humble opinion, is based on the combination of our key performance metrics AND the CLIENT’s perspective, not simply OUR perspective. The reason for this is due to the direct relationship between our client’s view of value and its impact on key performance metrics, and our ability to positively influence their view.
How might we attain this viewpoint, i.e., client perspective? Let’s start with a few items and see how we do.
Here are five questions to gauge your company’s positioning or value to your clients and prospects:
1. When your sales people articulate your company’s value proposition in front of a potential customer for the first time, what do they say?
2. If you look at the bulk of the content on your website – what does it describe?
3. What metrics do you use to define success in your customer relationships?
4. How do you measure customer loyalty?
5. What are the top three reasons potential clients decline to commence a business relationship with your company?
Relative to the above, here are some common value killers we have identified:
– Sales positioning focuses on the tasks that we perform vs why our service helps clients run their business better and make more money.
– Web sites focus on tasks vs. the wonderfully innovative model we have built and why they should be a part of this transformative relationship.
– Daily interaction/client support typically “does not have time” to interject and remind our clients exactly why we are doing business together and how their business is enhanced as a result.
So what can we do? Let’s start here (PS: we have written about these items before and are now reinforcing the construct):
You can solve this problem (increase value) by teaching/asking/demanding your Team to get into the operating reality of key decision makers in your customer’s environment. The operating reality of a client or prospect is defined by his or her strategic goals, financial and operational targets, and political landscape. When sales people, marketers, and customer service teams start to ask questions to understand these components of a client or prospect’s view they will begin to see problems and opportunities as they appear through the client’s eyes. This stuff is gold.
Take a look at the five questions above and see if there is a woven theme, or are they divergent? Don’t we want all or our messaging and interaction to reinforce a common theme and message?
Clients recognizing your value will be reflected in your profitability, client retention, organic growth, cross sell success and ultimately increase YOUR valuation.
If you have any comments or would like to discuss the content of this article, please do not hesitate to call me at (321) 251-8181 or email me at email@example.com.