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The Stages of Value Maturity - Stage III: Build

The Stages of Value Maturity - Stage III: Build

October 03, 2022
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Once you have protected your existing value, your focus can expand to building value.

According to Chris Snider in Walking to Destiny, there are two ways to build value: increase your cash flow (EBITDA) and improve your multiple. Your multiple is the number assigned by the private capital market to the value of your tangible and intangible assets and their associated risks. Intangible assets include Human, Structural, Customer, and Social capital. Improving your intangible capital is critical to building business value.

Strengthening Your Intangible Capitals

The strength of the intangible capital in your business is one of the key drivers of value.

HUMAN CAPITAL

According to Walking to Destiny, “62% of owners indicated that finding and retaining top talent is the biggest challenge they face.” When working on your employee development plans, follow a series of steps that encourage growth in your employees and your business.

Recruit: Consider why top talent would want to join your company. Is your business an attractive place to work? Can you clearly articulate your business values to your recruits? What characteristics are you looking for in a key employee?

Motivate: What are you doing to motivate the talent you already have in place? Employees want more than just a “job.” They want to be a part of something bigger. Are you a passionate leader who provides inspiration for your team? And mainly, do you have the right incentive programs in place to motivate top talent and keep them motivated?

Retain: You might have top talent in your company, but what are the rates of turnover for high performers in your business? Are you providing a path for professional growth as well as retention incentives for your top talent?

Evolve: How does your team need to evolve to grow your business? Are you promoting talent from within your organization? Can your leadership team evolve as your business evolves? If not, what are the barriers to their evolution?

SOCIAL CAPITAL

The Social Capital in your business incorporates this purpose, reflects your organization’s vision, and is ever-present in the day-to-day operations of your business. In a business, the strength of the social capital also begins with strong foundational elements; the organization’s vision and purpose. Your purpose guides every aspect of your business.

Christopher Snider writes, “Purpose expresses personal values, inspires and unifies the team, focuses action, and disciplines you to think strategically.”

The strength of your Social Capital is tied to your operations, your brand, your team's work, and daily communications among employees and customers.

Chris Snider writes in Walking to Destiny, “Customers place a high value on the experience of doing business with you, not just your products and services. The way you do business is a reflection of your culture. If your team is connected to your vision, they will be more passionate, creative, and committed."

CUSTOMER CAPITAL

When building value for a business, gaining specific insights into the Client Experience is a savvy way to increase your organization’s customer capital. We align with the Exit Planning Institute’s Value Acceleration Methodology and encourage owners to continue to focus on building value from strategies that increase cash flow, accelerate human capital performance, and now add velocity to the pursuit of building customer capital. Customer capital has become more than goodwill, it translates into the lifetime value of a customer, which has ongoing financial value to the business.

5 Ways to Build Customer Capital Through an Enhanced Client Experience

  1. Incorporate client experience into your strategic plan
  2. Establish a steering committee focused on customer engagement
  3. Calibrate your client experience based on customer feedback and needs
  4. Encourage leaders on your team to take initiative in the customer journey
  5. Establish clear metrics to measure the success of your strategy

STRUCTURAL CAPITAL

The most robust of all intangible capital is Structural Capital. It encompasses everything that makes your company work efficiently. The process, documentation, training programs, technology, tools, equipment, and real estate.

This capital captures the knowledge assets within your company, converting that mental process into company property and making it transferable.

Improving Your Multiple

Growth and profitability also contribute to the multiple, yet our primary focus is on the intangibles Social Capital, Human Capital, Customer Capital, and Structural Capital. We assess the organization’s 4 Cs and help them enhance each, resulting in enhancements to the business's intrinsic value. This then directly translates into growth and profitability.

Increasing EBITDA

TACTICAL ACTIONS

  • Improving expense controls and management
  • Identifying opportunities for improved operational efficiencies
  • Determining the more profitable subsets of clients and services with the objective to either enhance profitability from those subsets and or to begin to eliminate less or unprofitable subsets
  • Improving working capital needs

STRATEGIC ACTIONS

  • Looking at appropriate growth strategies - both organic and inorganic
  • Improving budgeting and forecasting processes
  • More guided decision-making for capital investments

Owner Exit Timeframe

The timeframe of an owner's exit impacts the amount of value-building initiatives that can be undertaken.

Building value in a business should be every business owner's goal. By strengthening intangible capital, owners mitigate risks lurking in their business, increase EBIDTA, and improve their multiple. Ultimately, this leads to a higher-valued business that is more likely to sell for a higher margin.

KEY ELEMENTS OF THE BUILD STAGE

  1. View the business value from a long-term strategy and identify strategic actions to increase significant value
  2. How do we strategically increase cash flow (EBITDA)?
  3. What strategic actions must be taken to increase intangible capital: Human, Structural, Social, and Customer?
  4. What strategic actions need to be taken to drive efficiency, drive growth, and drive culture?
  5. Continue to operate on 90-day sprints

Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Integrity Benefit Partners is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 200 Clarendon Street, 19th & 25th Floors. Boston, MA 02116. 617-585-4500. CRN202507-2694019.