A Top Three Key to Business Valuation Growth - Sustainable Competitive Advantage

The growth potential of your company is one of the most important factors in the valuation of your company. It allows your potential buyer to have confidence that the profits you are earning today will continue to grow into the future. This is extremely important to the buyer because a target with high growth potential will earn higher profits and better multiples which will lead to higher resale value of the business in as short as three to five years if your buyer is a private equity firm. If I had to select three key success factors that are crucial to improving your current lifestyle, the ability to live a life of absolute freedom, and the ability to leave a dynastic legacy for your family, sustainable competitive advantage (SCA) would be on that list.

Today, we will discuss the importance of an SCA. SCA is extremely important because it generally consists of one factor that allows you to win in the marketplace against stiff competition. SCA is also extremely important because it provides a level of value that competitors cannot provide and it allows the business to deliver more value, price higher, increase margins, and to target marketing messages to your SCA. What is SCA? It is the one key success factor that is extremely important to the customers, and it will have the greatest impact on the internal operations of the company.

How do you figure out what your SCA is in your marketplace? The first step is to list out a series of ten to twelve key success factors for your product or service on column A of your SCA spread sheet. Good examples of key success factors include quality, price, customer service, best people, and brand. These are just examples of key success factors. Your key success factor may lie outside the list of key success factors identified above. The best way to identify the key success factors is to brainstorm with your team through mind mapping. Mind mapping involves drawing a circle with the words key success factor and listing out as many key success factors as you can outside of the circle. You will then need to Pareto out the top ten to twelve key success factors.

The second step is to figure out the value to the customer for each key success factor. Scoring is done on a scale of one to ten with ten being the highest value to the customer and one being the lowest value to the customer. Scoring these key success factors in terms of value to customers helps us to identify a small list of key success factors that are extremely customer centric and of the highest value to your customers. Once the scoring is complete on the value to customer analysis, we throw out all the key success factors that fall under 8 on the one to ten scale because they will ultimately not be your SCA.

The third step is to score the key success factors that scored an eight or above on the value to customer on their internal impact to the company. The internal impact on the company is important because it measures how much impact each key success factor will have on the business. Scoring is again done on a scale of one to ten with 10 being the highest internal impact, and one being the lowest internal impact.

The last step is to sum the score related to value to customer and the score related to internal impact. If the combined scores for the key success factors are all relatively close, you probably need to problem solve the key success factors with your management team to pick the best option. If one of the key success factors clearly scores higher than the others, you have the key success factor that will allow you to win and potentially dominate your industry.

The value of your company is the one metric that business leadership teams should focus on every day because that will have the most impact on your current lifestyle pre-retirement, your lifestyle post-retirement, and your dynastic legacy for your family. ?A proper analysis of that metric must include your SCA. A strong analysis, plan, and implementation of your SCA will increase the value of your company exponentially and it will have a tremendous internal impact for your people.