Seeing and Building Success

Posted by George Sandmann on Aug 26, 2014 12:00:00 AM

Seeing and Building Success

“Scoring all areas of the business and completing related tasks provided me with both practical and psychological rewards. . .  CoreValue® also allows me to think and talk about my business at a [strategic] level I usually don’t get to when stuck in the day-to-day operations.

I’m much more conscious of my need to work ‘on’ the business rather than ‘in’ the business.”

 

 

Jim Lewis, Owner

 

Harvey & Lewis Opticians 

Why does Jim feel this way?

Jim was looking to answer not only “What is my business worth?” but also “How do my operations stand up to my peers?”  He needed transparent metrics by which to measure his company. CEOs like Jim want to clearly understand what drives the value of their business so they can work more effectively with their team.

Your company is like an engine, a sum of interworking parts, with each driving value in its own way. Some value drivers make a greater contribution to overall company value than others. If you understand and measure your inpidual value drivers, you will clearly see your opportunities to build company value, beat the competition and be more attractive to the market.   

Tracking ‘Value Drivers’ is how best-of-breed CEOs run their companies. CEOs are accountable --to their stakeholders and to themselves-- for value driver performance. Increasing the performance of inpidual value drivers increases overall company value. Increasing company value leads to greater personal wealth. 

How do we measure value drivers? Looking at the metrics from leading business valuation and due diligence methodologies, industry-leading CoreValue Software distilled 18 critical value drivers making up a business’ total operation. From our data, we know that the top 5 value drivers make up almost half of the value gap, which equates to hundreds of thousands, or even millions of dollars of opportunity for our customers.

The average value building opportunity (value gap) in the $18B worth of companies measured using CoreValue is 27%. Let’s look at CoreValue’s data on the top 5 value drivers.  They are:

Value Gap Critical Drivers     

1.  Barriers to Entry

2.    Sales & Marketing

3.     Brand

4.     Growth

5.     Recurring Revenues

Let’s take each in turn.

1.  Barriers to Entry. Goal: ‘There are significant obstacles facing a new entrant into your company's market.’  Of the 18 value drivers measured using CoreValue Software, failure to protect the company from competitorsis #1, contributing a whopping 9% of the total value gap.  It stands to reason: patents, trademarks and/or copyrights, possibly coupled with trade secrets, exclusive agreements or a powerful location create a lower risk profile, and increase value.

Seeing and Building Success
2. Sales & Marketing. Goal: ‘Your company can produce revenue in a proven and systematic way, ensuring the business is sustainable, and not simply based on the efforts of inpiduals within the business today.’ By implementing better Sales & Marketing processes and procedures the average company increases their value by $690,000.  Having a strong sales team is great. But to increase company value, you must explain to current and potential stakeholders the process by which sales drives revenues. Results are important, but a transparent process is critical.

Our next article will cover the remaining 3 top value drivers: Brand, Growth and Recurring Revenues. We’ll share conclusions from CoreValue’s data on how and why CEOs who steer using quantitative metrics create best-of-breed companies, and the impact this can have on your personal wealth. Part 2 will be published next week; if you’d like to read more now about building company value please visit corevaluesoftware.com.  

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