Where is Your Business on the Value Spectrum?
Every business has a range of values depending on the buyer’s view. Maximising the value of your business depends upon your ability to recognise what value it has at today, what has to happen to increase it and how you position the business for the best outcomes for you and all of the stakeholders. There is a simple spectrum identifying the different types of businesses – from boutique to scale – each is just a different model for running a business and more importantly different value drivers at each end of the spectrum.
Some common examples illustrate this much more clearly:
This is McDonald’s – a true scale business – value is based on volume. This is a highly efficient factory for churning out fast, convenient takeaway meals (initially hamburgers but now a wider range of meal options ) – forget the ethical and health arguments for a while and just look at the business. The typical McDonalds franchise in the UK sells for between £400k – £800k plus fees and other extras, so you may be looking at nearly £1 million to buy A HAMBURGER SHOP! Seems like a high price but what you are buying is a tried and tested business that makes money and is easy to run. This is Michael Gerber’s e-myth on steroids – highly systemised and efficient factories where volume is key with some distinct factors that contribute to its unique value and explains why they sell for nearly £1 million.
These are speciality businesses servicing a niche market or clientele – like Hanzell Vineyards in Sonoma County, California – an vine-to-bottle wine producer who will be capped at on 7,000 bottles a year of premium wine that is highly sought after or Westerns Laundry – a unique restaurant in Highbury East, London who had built special relationships with Cornish suppliers to create great demand for excellent seafood in unexpected places.
In the middle sits –
NO MANS LAND
Not a great place to be – simply put this is when you try to serve a hamburger in Western Laundry or try to cook langoustine with bloody marie rose in a kitchen at McDonalds – many get caught trying to produce and serve a product that the factory is not designed for. Due to the cashflow pressures of start-up or ignorance of real value drivers in a business, many enterprises get caught in this trap and end up taking on clients / products / markets that are not in their target group and therefore they move their business away from either end of the model and towards no man’s land – where value reduces.
Knowing how to drive value in your business, as well as what to do if you get stuck in no man’s land, is a valuable starting point for understanding how to build real value into the future of your business.
Deciding whether you are a boutique or scale business is the first step to understanding the best route to your succession plan.