Improve Your Metrics

Numbers are the universal language

And they tell the most truthful story there is. And most successful business owners run a tight ship – they know every metric that’s useful in managing the business. Spread sheets, cheat sheets, checklists, knowhow – they’re all valuable. But to a new owner or investor, these can’t replace the attraction of a systemised business. We help optimise your systems & processes with minimal time & effort. In 4 – 6 weeks, you’ll see emphatic improvements.

 

7 ideas to improve your systems and processes

1. Broaden your horizons

Most change requests in a company come from within IT. But all of your employees should also be taking an active role in requesting process additions or changes. Employees are more business savvy that you might think. And they certainly know how to simply and streamline their job. Start listening to their needs more closely and consider making the changes they ask for.

2. Small, quick, frequent changes

If you’re stuck reviewing and making nig changes every couple of months or quarter, you’re essentially driving a truck through busy streets when you should really be on a scooter. Business methods and technology move at a pace faster than ever before. Process change must adapt to meet that higher rate of speed. Consider smaller, more frequent changes, as opposed to queuing multiple changes that are all made in a big push.

3. Test, test and test some more

With today’s modern technology and systems, it’s easier than ever to build a test environment that closely mimics the actual business situation. Duplicating real word environments is a snap, and it will tell you if your assertions are correct, your strategies are sound and whether your execution is effective.

4. Don’t be afraid to fail and fallback

Customers demand that changes happen faster than ever before, which makes it more likely that some of your efforts will fail. Do your best to get it right the first time, but don’t let the perfect be the enemy of the good. Instead, have a plan in place to back out of changes if things go badly. Fallback procedures should be considered as important as planning for the actual implementation.

5. Run small meetings

We’ve noticed in recent years that the number of attendees at change control meetings has ballooned as companies looks to cover all the bases. We’ve seen meetings that could fill an auditorium. If that’s true for you, pare down your attendee list. Two goals of any change control meeting are to inform and identify. You want to keep other parts of the company informed about pending changes and what the expected impact will be. And, you want to identify any changes to one part of the business that could have a negative impact on other parts of your infrastructure. To streamline this process, invite only the most necessary people and rely on them to disseminate information to their teams as needed.

6. Stop bothering the change-makers

For critical and complex changes, all eyes are on those doing the work. And please know that it’s completely useless for managers to “check in” to see how a change is going during an implementation phase. If you trust your people to make such important changes, you must also trust them to reach out to you if and when they experience challenges and problems. If they’re not contacting you, leave them alone and let them do their job.

7. Document your successes and failures

We often see companies fail to document what actually happened during a change window. What are the objectives, metrics and improvements? Often when people do manage to document what happened, it’s only in cases when a change failed. Changes should be well documented by those involved, whether they are successful or unsuccessful. Doing so creates a history of what worked and what didn’t, and those lessons can be used in future changes that might be similar.

 

 

Growth & Scaling

How to grow and scale your business

Growth and scaling are related but different. Growth is simple – it means the historic growth rate of your business. Is it high growth, medium growth or somewhat stagnant? Have you had consistent growth or has it been patchy? Can you identify times of high growth ahead and support that with market data?

Scaling refers to the robustness and repeatability of your processes. Can you readily pump up the volume of your sales? Can you identify new customers that look similar to your existing customers? Can you identify new market segments for your products & services?  Do you have new products and services in your development pipeline? Are you able to market to and service your customers using automation where possible?

 

Growth options

Fast growth is easier to achieve in sectors driven by innovation, and launching new products or services can fuel considerable growth quickly. But most businesses opt for gradual, organic growth that is more manageable and involves less risk. There are a number of well-established strategies:

• Sell more to existing customers. This may involve working harder to build relationships and taking on more sales staff.
• Attract new customers through increased investment in promotion and advertising.
• Expand existing sales channels, or create new ones. This might include, for example, developing an online sales channel.
• Enter new markets. Exporting could be an option, selling beyond your region or aiming your offer at an entirely new set of customers. This may also involve opening up new outlets.
• Introducing new products or services to your marketplace can give you an instant edge – providing you have researched your market thoroughly and have a clear product strategy.
• Introduce new technology to your business. Better equipment can increase your capacity and has the potential to free up staff time if used efficiently.
• Create partnerships with other businesses. Sharing resources and expertise with another business will enable you both to flourish without overstretching yourselves. It also opens the door to public sector contracts.
• Successfully tendering for contracts can stimulate the growth that takes your business to a new level. As you increase your resources, you will be in a better position to win more contracts.
• Networking can introduce you to potential customers, business partners, investors and mentors.

The implications of business growth

A larger firm is likely to be more complex, demanding and time-consuming. It will probably require greater commitment; and you are likely to have to spend more time doing things you don’t really enjoy, such as financial planning.

You will probably also have to concede some responsibility or control to others and invest in greater resources, such as larger premises, more equipment and more employees. As the business grows, your costs and management burdens will increase. So it requires a genuine commitment.

 

When to expand your business?

Don’t make the mistake of attempting to grow too soon, but wait until you have a period of successful trading behind you to provide evidence that your business model works. This, perhaps along with some basic market research, will also tell you whether there is enough demand to justify expansion and give you time to put the systems in place to cope with an increase in scale.

Working to a development strategy will help you measure your progress. It should set out your methods, costs, targets and a realistic schedule and you should revise your business plan to incorporate these growth strategies.

Now, properly equipped with a plan, a set of strategies and the right resources to execute, growth becomes a sustainable, manageable operational part of the business.

 

Improve your valuation

A few words about your valuation

Your valuation is dependent on two major factors:

1. Your attractiveness to a new prospective buyer; and
2. Your key metrics, such as revenue, growth rates, market share & EBITDA

However, most companies do not possess a perfect set of numbers, so if that’s your situation, don’t worry – a lot can be done in a short amount of time to improve your valuation.

 

Here’s an example…

Let’s say your revenue is $5M per year, your growth rate is 12% over last year, and yet you don’t show a positive EBITDA. While it’s true that a multiple of EBIT is one way to value a company, that’s only part of the story. There are many companies looking for economies of scale and increased market share. So here’s how it might play out.

Let’s say a public company has a P/E ratio of 15X (not difficult to imagine, because the average P/E ratio for ASX listed companies is approximately 15X). And let’s say that they are looking to acquire your company for $10M, which happens to be 2X your revenue. If you have an EBITDA of zero, why would this company be willing to pay you $10M?

 

How much are you worth?

It all comes down to whether they can integrate your company into theirs, grow your revenue from $5M in the first year, while reducing operating expenses – somewhat easy to do, because they already have an departments for accounting, IT, HR, legal, etc. So by decreasing the opex by $1M, it will increase the company value to $15M.

So by acquiring you for $10M, they immediately add a potential value to their company of $15M. Not a bad deal. But it gets better. If your growth rate remains at 12%, then after 3 years, your revenue will have increased by 40%, or an additional $2M. So if they are able to keep the same ratio of opex to revenue (approx. 80% in this case), then their new EBITDA on your part of the business will be $1.4M, for a new valuation of $21m.

 

How to grow your net worth

In 3 years, this company will have more than doubled their return on investment of acquiring your company. This technique is called a “rollup strategy” and it’s one significant way that Private Equity companies make their money.

The story gets better when true integration happens – the multiplier effect of serving multiple markets with the same or similar resources. For example, let’s say you’re in Market A. It’s not difficult to see how you might target Markets B and C which are similar to A, but they give you the chance to widen the size of the net that you cast. In the same way, if your main offering is Product X, adding products Y and Z can increase your billings with the same customers by offering a broader range of relevant products.

This is how all successful companies grow:

• More customers, same market
• More products, same customers
• More markets, same products

 

A quadruple win

If acquiring your company is first of all, a no-brainer for the uplift in their valuation, and second, a multiplier in terms of the number of products they offer to more customers in more markets, it becomes a Win-Win-Win-Win.

By you understanding the value of these Wins for your prospective new buyer,  it allows you to create an attractive value proposition, thus increasing the competition for the purchase and uplifting the money you’ll earn.

 

See what’s happening here?

Let’s go back to the original scenario we painted: $5M in revenue, zero EBITDA and 12% annual growth. Not a heck of a lot to cheer about. Solid numbers but not stellar.

But by changing the frame of reference from Seller to Buyer, we could establish that acquiring your company would be an astute decision, and not only for one reason, but four. And all of those four reasons result in a significant uplift in valuation and performance for your new owner.

That’s what makes a successful exit event.