Six Ways to Increase Your Company Value
Before we get too deep into the year, why not take one or more actions that can propel your company value to new heights? It’s not just about marketing and selling better, or about creating a better customer experience (CX). You have been doing these things for some time, so why not try something a little bolder this year? Here are six options to consider.
- Increase your prices
The biggest factor in whether you are able to increase prices (and profits) is whether the market perceives other products and/or services as similar or superior to yours. In other words, if you are perceived as a “commodity,” when you raise prices, business and personal consumers either purchase less or substitute with a competitive product or service. This is why a differentiation strategy is so important.
- Acquire or consolidate
The idea behind a consolidation/acquisition strategy is that the combined entities create synergy that adds value above and beyond the sum of the individual entities. Or to put it another way, two companies with a valuation of $10 million each, may create a $25-30 million entity when consolidated. Plus, you can often take out costs from the combined entity. As an example, when I participated in a merger of two public companies, we were able to take out $800K in accounting expenses alone. For a more in-depth analysis on how consolidation affects valuation, review Rob Slee’s Slideshare on Private Capital Markets.
This is probably the last bit of advice you want to hear. Re-branding is about as much fun as a root-canal. However, it can sometimes be a catalyst for major growth and value generation. You can probably benefit from a re-brand if:
- Your current brand is stale and based on older technologies or ways of doing business. A sad example of this is Sears, which decided on more than one occasion to protect its existing branding instead of evolving (what could have been?).
- You have added new products or services that do not fit the existing brand.
- Your brand is unclear and/or undifferentiated.
Two softer alternatives to re-branding are to re-launch or complete a messaging refresh. Software companies are constant re-launchers – a couple of new features are added and they make it sound like a totally new product. They do this to keep their name top-of-mind and their reputation for innovation intact. Consumer products do this using bold statements on the packaging like “New and Improved”, often when the changes are fairly minor. You can adopt a similar strategy for almost any type of product or service.
A messaging refresh is almost always beneficial, assuming you don’t botch it by confusing existing customers/prospects or misrepresenting your company and its offerings. If you do this, make sure you focus on the “Why” of what you are doing, not just the what and the how. And don’t bother to update your messaging without creating an aggressive plan for evangelizing the new content.
- Add a recurring-revenue model
Many organizations are increasing company value by implementing a new pricing model that brings in a more predictable revenue stream. Perhaps the most well-known examples are subscription contracts for items like cell phones and cable TV. On the business-to-business side, many software companies have dropped the “perpetual license” in favor of the monthly- or annual- subscription model. This works even better if you can sell the platform up-front – as Bloomberg does with its Bloomberg Terminal, which users must purchase before subscribing to the financial service. Printers are another example of a product where the follow-up revenue can be much greater than the initial purchase. Recurring revenue is even more predictable if you are selling auto-renewing contracts (also known as “evergreen” revenue).
- Develop and document repeatable processes
Although I usually write about marketing, sales and customer experience, in this instance I am referring to all your processes – from the way you greet people that call your company to the way you package and ship your products – and everything else you do in the course of running the business. All great companies seem to have this in common. When you walk into a Costco, Panera Bread, Chick-fil-A or other company at the top of its game, you will have the same experience, regardless of locale. Sam Walton, the founder of Wal-Mart, used to travel the country looking for and correcting minor deviations in how local stores operated.
Yes, you can develop and document efficient processes regardless of your company size. One quick example: the desk staff at my local gym always greets clients when they enter or exit – not sometimes, or most of the time, always. This may be a small detail, but from such details, great companies are made. I recommend two books to help you on the path to a systems mindset: Work the System, by Sam Carpenter and The E-Myth Revisited by Michael Gerber.
- Offer fewer choices
Just as with raising prices, this is a counterintuitive strategy but it often works. In the famous “jam experiment”, researchers put a test table in a supermarket and they offered six flavors of jam. About 40%of customers stopped to sample the jams, and 30% purchased – a very satisfying result. A week later, they set up the table in the same location but offered 24 different flavors. In this case, roughly 60% of shoppers sampled, but only 3% purchased.
We have seen this scenario play out with our B2B software clients. Our testing shows that the optimum number of choices to offer is three (e.g. silver, gold, and platinum) and adding more options actually suppresses purchases. Just as the jam study proved, in most cases, too many options overwhelm consumers and cause them to freeze.
One more point to consider: Fewer offerings give you the opportunity to do a better job on higher value endeavors. Noted productivity author James Clear makes this clear (pun intended) in an article titled What to Do When You Have Too Many Ideas and Not Enough Time: “If you’re building a business, maybe you have three product lines that are profitable. Your business might grow by 5x if you focus on all three, but which product line will grow by 500x if you put all of your energy into it?”
Hope you find one or more of these six strategies helpful in achieving a prosperous year and enhanced company value. For more ideas, listen to the on-demand version of my webcast on boosting business value.
Note: this article originally appeared January 3, 2019 at CustomerThink.com.