What makes a business successful? Provide value, cost-effective! “Value drivers” take advantage of business profitability and reduce risk. Value drivers distinguish successful companies from their competitors.
For many business owners, their business represents their life’s work and the majority of their net worth. Unfortunately, only 1 in 4 private companies sell, according to statistics compiled by the International Association of Business Brokers. So unless you want to just close the doors and retire, it’s smart to take steps to maximize business value.
Value drivers vary by business type. While reputation and cost control are always important, other factors vary. For example:
Restaurants – are known for their reputation for good food and a positive dining experience. Value (benefit) drivers for a successful restaurant include: location, concept, menu, quality of kitchen staff and servers, and cost control.
Technology companies: must have a core product/technology or “know-how” that solves a customer problem. Key value (profitability) drivers include: highly skilled workers, quality and cost control, and R&D (research and development).
Professional service firms: They are known for their reputation. Key value (profitability) drivers include personal relationships, highly-skilled staff, and cost-effective service delivery.
Retail: Brand/merchandise mix and location are critical. Key value (profitability) drivers include inventory management and cost control.
Value drivers are often “intangible” and are employed.
Intangibles (intellectual property) and human resources (going home at night) can be protected and leveraged through a combination of business strategies and legal protections. Business strategies include incentive compensation plans to recognize, reward, and retain high performing employees. Legal protections include requiring key employees to sign non-compete agreements, registering trademarks and copyrights, and taking steps to protect proprietary information/trade secrets, such as recipes and formulas. Contracts with key players, including partners, customers, and suppliers, are also important.
What are the value drivers for your business?
Start by using the SWOT Analysis – Strengths, Weaknesses, Opportunities and Threats – this will help you identify the “value drivers” for your business. With this approach, you can focus on key value drivers.
Bottom line, it’s easy to get distracted by all the competing demands for a business owner’s time and attention. To maximize the value and profitability of your business, you need to focus on key value drivers, which can be intangibles and employees, as well as having up-to-date equipment and systems.
An independent perspective can be invaluable in identifying value drivers and crafting a plan to increase the profitability of your business.