Creating a Value-Focused Company  

31st March 2006

Creating a Value-Focused Company
The primary focus of BOSS Management Group is to work with our clients to grow the value of their businesses. It is the value of the business which ultimately delivers wealth and returns to business owners and shareholders.

In a broad sense, business value is delivered through a ‘sustainable’ competitive advantage.

From a business valuation perspective, there are a number of factors which will influence the value of your business, some of those being:
  • Earnings track record – that is, the ability to deliver sustained financial performance
  • Industry growth
  • Competitive marketplace & your share of the market
  • Customer value, acquisition and retention
  • Product/service attractiveness
  • Ease of operation of your business – inbuilt procedures and systems
  • People – employees, owners, managers
  • Location
  • Assets

It will be far easier to start focusing on those influencers of business value now, than further down the track when you are thinking of selling your business, or a share of it to an investor.

Outside of the financial drivers, there are 3 key drivers of business value which can have pretty much an 80/20 impact on the value of your business. That is, if you focus on these drivers they will create 80% of the value in your business, and the other factors will take care of the remaining 20%.

The 3 drivers which will really build the value of your company are:
  1. Real growth potential
  2. A team that delivers
  3. An enduring competitive advantage

If you take the 80/20 approach again, you will get 80% of your results if you focus on a few key components of each of these value drivers:

Real Growth Potential
  • There are two types of growth potential – predictable, and exciting.
  • Exciting growth, delivered against, creates more value than predictable growth. Organic growth, usually based on assumptions in revenue increases, is still valuable if achieved, and if the market indicators show a trend for continued expansion.
  • There is nothing wrong with more predictable growth as long as the organisation continues to deliver results, and as long as there is still growth in the overall market space.
  • More exciting growth may be deliberately created, or it may come from an unpredictable opportunity (such as the 3M corporation accidentally creating the first Sticky Notes product)
  • The creation of real market growth potential can come when you:
    1. Get in early to a growing market
      eg: mortgage choice brokers
    2. Take market share from incumbent suppliers
      eg: B2B (Dell), B2C (Pepsi)
    3. Duplicate your business model
      eg: Franchise, license, new markets
    4. Identify & own a niche
      eg: Apple Mac – schools, designers, iPods
    5. Develop demonstrable growth paths for customers/clients
      eg: Banks – cards, savings accounts, business accounts, mortgages, loans, overdrafts, second cards, etc etc.
    6. Expand your market (scope)
      – Market diversification (eg: alcoholic drinks into soft drinks)

A team that delivers
  • A team that delivers is one that can execute the business strategy and take the company closer to its vision.
  • There are many models of leadership, team empowerment and motivation, and creating high performance teams.
  • The 3C model is one which advocates that leaders need to Challenge their team, build Confidence, and Coach them.
  • Building a Culture which attracts the right sort of people to your organisation is also important.
  • Attracting, inspiring, challenging and mentoring also have their roots in the vision a company has for its future, its purpose and its values. These are all fundamental foundations in building a team that can deliver results and build value into the organisation.

An enduring competitive advantage
  • Common references are to ‘sustainable’ competitive advantage, but you can’t ‘set and forget’ your competitive advantage. In order for your market competitiveness to endure, it needs to be based on innovation, adherence to the discipline of adding value to customers, and understanding market dynamics.
  • Some of the ways to create exciting growth potential, outlined above, also result in enduring competitive advantage. Think of the most enduring competitive advantage example of all: McDonalds.

Focus on how to create real growth potential for your organisation, how to build a team that delivers, and how to create an enduring competitive advantage, and you will have created a highly competitive value-focused company.