August 19, 2018

Valuation Engineering

Entrepreneurs invest massive amount of time and make personal sacrifices building businesses with real revenues, customers and organization. However, 97% of businesses fail to achieve solid valuation potential for their business.

Valuation Drivers

Low valuation leads to undercapitalization

Without sufficient capitalization, it is hard to fund growth projects, hire talented people, build strong organizations and fight intense competition. There are many drivers of valuation including revenue levels, growth rates, brand, gross margins, market size and your market share. 

undercapitalization

 

The 2 critical drivers to achieve higher valuation multiples 

#1 The extent and depth of technology integration into your core business? For example, Amazon commands a higher valuation than traditional retailers because of its use of technology.

#2 What is your proximity to the consumer in the value chain?  Companies that are closer to the consumer in the value chain gain higher multiple than those lower in the value chain. For example, Apple enjoys a higher valuation than Foxconn that manufactures many of apple products.

In other words, entrepreneurs leveraging technology & brand development may enjoy a non-linear effect on your valuation. However, both technology and brand development in the traditional sense may not be cheap.

 

How does a small/medium size firm use the technology and brand levers?

 SMAC

The answer is SMAC - Social, Mobile, Analytics and Cloud.

SMAC offers an economical way to leverage all the great technology enablers to build scale and therefore develop your brand. We offer some insight into how to use each of these areas in non- traditional ways into any business.

Social

 

social - smac

Social is not just use of social media. Social media such as facebook is simply an advertising platform today. Here are some recommendations how to approach social.

1. Make your core products “social” - Ensure your proposition is exciting enough to be shared by your users with other users and to use a social platform effectively, for your business.

2. Integrate with popular platforms. Make your product such that it integrates with facebook and other platforms through APIs.

3. Build on top of social platforms. This may include widgets/games that are related to your business. These widgets live on the social platforms.

4. Create social activation models such as referrals and rewards that rive user engagement and transactions.

Mobile

mobile - smac 

The use of smartphones is a blessing to every business man. This means that you can connect with your customer and users anytime anywhere (nearly). Ensure your business is mobile ready by building a mobile app designed to do the following:

1. Increase retention - Your customers and users return to your app for deeper engagement.

2. Increase referrals - Build features into your mobile app that prompts a user to invite their friends and family.

3. Match market time - Generally most businesses are open when their customers are busy. For example, a store is closed late in the night when potential customers are shopping. This is called the company to market time mismatch. By providing self-service on the mobile phone, you can match market time to company time and increase sales and reduce service costs.

 

Analytics

analytics - SMAC

Analytics is a competitive advantage for most companies. Many entrepreneurs fail to measure the key metrics required to make the right investments. Today, with technology available there is no excuse for not measuring key performance metrics.

1. Capture user metrics - These could include visitors, activations, retentions, average revenues, life-time value, repeat frequency, etc.

2. Apply 80-20 rule - Our experience with our clients show that only 2 out of 10 projects are providing major benefit to the company. Rest exist either because they are misguided projects or because the company has done things a certain way and has not bothered to undertake proper reviews. By Identifying projects that appear to be good but may be causing financial drain on the company, entrepreneurs can eliminate waste and release precious capital to grow the projects that are already working.

3. Unlock hidden value -  Revenues and profits is not the only way to demonstrate value. In many companies, just having good data can unlock hidden value. By showcasing this data to investors, you may be able to command higher valuation.

Cloud

cloud- SMAC

Cloud software allows you to deploy technology rapidly. By not having any on-premise assets, your company can be asset light when it comes to technology implementation. Cloud also makes your business operations highly scalable. We recommend that you move the following functions to the cloud.

1. Marketing Stack - Put all your customer data on cloud based CRMs. Today, Software As A Service (SAAS) companies also provide mobile apps making data available to marketing teams anytime anywhere.

2. Sales Force Automation - In B2B settings, provide your sales team with SAAS based software with real time access to company information so they are equipped to convert leads into customers. Given SAAS offerings are so competitively priced, it would be silly not use these amazing tools to grow your company.

3. Operations - Ensure your company's operations are monitored, measured and managed using SAAS based software. Connect your various departments so that customer information flows directly to the back office. The benefits are many from cost reduction to time to market.

4. Collaboration - Ensure your people work through SAAS based collaboration tools. By using the cloud effectively, geo-location becomes less relevant. Employees gain the flexibility to work across sites, departments and projects effectively.

Summary

Growing your company's valuation is single most important job of the founder/CEO. To be able to do this. In order to achieve higher valuation, here are the key takeaways.

1. Set business goals for valuation (multiple)

2. Sharply define your market positioning.

3. Make clear visual identity on both digital and offline channels

4. Sharpen your core proposition

5. Define your key customer metrics

6. Constantly improve on your customer metrics

7. Cut wasteful projects and redirect your investments into SMAC



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About Argience

Over the past 12 years, Argience has worked with entrepreneurs and businesses to help them achieve their valuation goals through technology and brand development. Our clients have counted on us to help them simplify their digital future. We have strategised, designed and delivered multiple SMAC solutions - Websites, Applications, Digital Products and Platforms for global MNC’s such as Proctor and Gamble, HP, Disney and many more in the US, Middle East and Asia.

We combine strategic thinking with a deep understanding of user needs and behaviour. Our partners bring decades of experience in technology, marketing and business strategy having led product and marketing teams in Fortune 500 silicon valley companies.

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