10 Things That Make Your Business More Valuable Than That of Your Industry Peers
We at the Habits of Profitability™ Team are known for a few things, most of them great and some we will spare you details (lol), but the most important reputation we have is a drive towards the top percentile – first against your industry competitors and second towards a performance worth writing about in Forbes, Bloomberg, Entrepreneur, or Inc Magazines.
With that, we have worked with many companies across many industries. While each company might have a super unique product or service – even revolutionizing at times – the foundation or journey towards high growth business building, stabilizing top percentile profits, and crushing the competition has always had similarities. I will say it again, just because your product or service is revolutionary, does not mean the consumer or business world will drop money at your door more than once. You have to continually build and stabilize as a REAL business. I know – not what some of you are looking for, but let’s change those odds against you and give you some insights that will give you a leg up as a CEO, Investor, or Business Leader that are proven to change the game for you. $100 million valuations or even $25 million in revenue does not just knock on your door, it is earned by crushing your competition on these 10 points:
- Recurring Revenue
The more revenue you have from automatically recurring contracts or subscriptions – meaning predictable or you have some form of control on the customers buying power, the more valuable your business will be to a buyer, investor, or any external party. Even if subscriptions are not the norm in your industry, if you can find some form of recurring revenue it will make your company much more valuable than those of your competitors. To take this a step farther, there are more than 6 tiers of recurring revenue, each making your company more valuable. We won’t dive into that here as the Habits of Profitability™ Leaders would talk all day.
- Something Different
Buyers buy what they cannot easily replicate on their own or are unwilling to fund the build out on their own, which means companies with a unique product or service that is difficult for a competitor to knock off are more valuable than a company that sells the same commodity as everyone else in their industry. Your uniqueness is more than what you think. It has to be quantifiable or else is theory still. If your product or service is X better than competitors or the experience you provide is better – prove it with the number story. Habits of Profitability™ Leaders from Foresight CFO don’t just say their team of High Growth CFOs and Reliable Accountants drive a culture of Confidence, Clarity, and Impact; (great buzzwords, right? Feels good when you say it) they track each with a KPI and CEOs they work with constantly praise Confidence in their numbers, Clarity on the decisions ahead, and overall Impact decision making using the number story.
- Growth
Acquirers looking to fuel their top-line revenue growth through acquisition will pay a premium for your business if it is growing much faster than your industry overall. The key point to remember here, growth and your projected trajectory must be on the up and up versus slow down phase. If you grow 100% year over year and all of a sudden see a downward trend, and your buyer or investor sees it, the upside for them writing a big check for you is less enticing. Top percentile performance and value are different and it is an art if we do say so ourselves – #HabitsOfProfitabilityTeamMicDrop
- Caché
Tired old companies often try to buy sex or trend appeal through the acquisition of a trendy young company in their industry. If you are the darling of your industry trade media, expect to get a premium acquisition offer. With that said, be prepared to have a conversation about workflow integration, operational tempo in a new environment, and staff willingness to work for a new head cheese. By now your head might be exploding and that’s ok, it’s not easy to be a successful CEO, Investor, or Entrepreneur. Think teamwork, advisors, mentors, and amazing leaders all around you and life just got a tiny bit easier. Not easy, just some breathing room knowing you have problem solvers by your side ready for anything.
- Location
If you have a great location with natural physical characteristics that are difficult to replicate (imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licenses to operate), you’ll have buyers who understand your industry interested in your location as well as your business. Ok, now for those of you who were ready to skip this one, think location to networks, events, etc. Sometimes location and who you see or run into or have the opportunity to meet because you’re close to a potential strategic partner can be a game changer. Proximity is a relationship hard to beat sometimes.
- Diversity
Acquirers pay a premium for companies that naturally hedge the loss of a single customer, partner, vendor, supplier, etc.. Ensure no customer amounts to more than 10 percent of your revenue and your company will be more valuable than an industry peer with just a few big customers.
- Predictability
If you’ve mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to an acquirer than an industry peer who doesn’t have a clue where their next customer will come from. We cannot say this enough: Predictability = stability = confidence = less risk (generally) = more value.
- Clean Books – THIS ONE HAS HURT SO MANY CEOS & COMPANIES AT THE FINISH LINE
Companies that invest in audited, usable, due diligence ready statements have financials that are generally viewed by acquirers as more trustworthy and therefore worth more. Remember the Confidence, Clarity, Impact promise by Foresight CFO. You may want to get your books managed and reviewed professionally monthly even if audited statements are not the norm in your industry. Think about it this way. When the opportunity comes knocking on your door and you’re not due diligence ready, two things happen.
- You will spend a fortune trying to clean up, get ready, and mistakes will still be made because a half a** rushed job is still and always mediocre at best. Plus, the people you hired to help know you’re in a bind and you will pay for it.
- OR..you fall flat because you’re not ready and a competitor is.
The big take away here: your financial ecosystem is what drives success early on, stabilizing your performance, and gets you across the finish line. Why would you treat it like a chore and keep kicking the can down the road? Get the right people on your team to take care of it! The numbers should empower you as a CEO, not hinder you.
- A 2iC
Companies with a second-in-command who has agreed to stay on post-sale are more valuable than businesses where all the power and knowledge are in the hands of the owner. Seriously, your team needs to stick around and almost are always part of the value discussion. No one wants chaos and missing leadership that made it this far.
- Happy Customers – btw…I cannot believe this has to be said.
Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.
Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell for; but whether you fall at the bottom or the top of the range comes down to factors that have nothing to do with what you do, but instead, how you do it.
Now take a step back, breath, relax, and take all of this in. Share this golden knowledge with your team. We at the Habits of Profitability™ along with your current investors, advisors, mentors, and friends who actually have your best interest at heart are here to guide you! Let’s GO!