What makes a business successful? Providing value, cost effectively! “Value drivers” leverage 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 most of their net worth. Sadly, only about 1 out of 4 privately held businesses actually sell, according to statistics collected by the International Business Brokers Association. So, unless you want to just close the doors and retire, it’s smart to take steps to maximize the value of the business.
Value drivers vary by type of business. While reputation and cost control are always important, other factors vary. For example:
Restaurants – are known by reputation for good food and a positive dining experience. Value (profit) drivers for a successful restaurant include: location, concept, menu, quality of cooking and wait staff, 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 Services Firms – are known by 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.
Frequently, value drivers are “intangibles” and employees.
Intangibles (intellectual property) and human resources (who go 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.
In conclusion, it’s easy to be distracted by all the demands competing for the business owner’s time and attention. To maximize the value and profitability of your company, you need to focus on the key value drivers – which may be intangibles and employees – in addition to having up-to-date equipment and systems.
An independent perspective can be invaluable in identifying value drivers and putting together a plan to increase the profitability of your business.
