5 Steps to Developing a Value-Based Strategy for Your Company
March 17, 2017
Management consultant and business visionary Peter Drucker once said, “If you don’t have a customer, you don’t have a business.” In order to ensure the sustainability of its customer base, business owners must constantly balance their company’s ability to deliver value to the customer and its need for economic viability.
CONNSTEP recently held workshops on exit planning for the increasing number of baby boomer business owners thinking of transitioning their companies to new ownership. One of the sessions was titled “Developing a Value-Based Strategy for Your Company” presented by Roy E. Johnson, M&A Advisor/Business Exit Consultant, for Touchstone Advisors, a Connecticut exit planning and merger and acquisition firm.
Johnson kicked off the session by stressing the focus of having a business strategy that optimizes the value delivered to the customer while growing the business. Often times, a business can suffer when the value delivered outweighs the return on the business owner’s investment – employee time and energy. This is when it is critical to balance between customer value AND economic value.
Johnson emphasized the importance of defining your business. This involves business owners examining their market to determine if it is a big enough one to be valuable and yet relevant at the same time. If you are competing in a large market, you risk becoming irrelevant to customers or even to a potential buyer for your company, unless you can become a bit more finite – selecting a niche, a more specific area, within your market space.
For example, you may be operating within the medical devices industry, but if you drill down to the specific product you are producing such as hand-held, medical devices, the corresponding market size and share of the overall market makes you more attractive to a prospective buyer and a more formidable competitor.
Here are Johnson’s five (5) steps to developing a value-based strategy:
1. Define the business – Understanding the current state and desired future state of your business. This includes knowing who your customers are – current and prospective – and their needs. They are searching for a solution therefore, knowing which products or services your company has to fulfill these needs is part of understanding where the business is now and where it may need to be.
2. Set an objective – An objective or goal is WHAT you want to do or accomplish with your business. It may be choosing a revenue number and a deadline ($15M within the next 5 years) and then outlining what needs to be done to get there. Objectives are often the foundations of creating a company vision which every business should have.
3. Develop a working hypothesis – This is about developing a strategy, which is HOW you’re going to achieve your objective or goal. What needs to get done to realize the vision. Small to mid-sized companies should target no more than three (3) strategies, essentially road maps to achieve the objective. More than this will make it difficult to plan and attain. And, most likely, even more difficult to fund!
4. Test the hypothesis – Once you’ve defined your strategies, then you analyze them. Evaluate them in terms of sales potential, estimate costs and expenses, investments and their timing and forecast cash flow.
5. Develop operating plans – Choose your strategy and identify the priorities to work on. A “project management” approach should guide these plans, with people assigned responsibility to get things done, setting milestones and establishing a monitoring system.
When monitoring the strategy’s progress, be mindful of:
- Critical or Key Success Factors – these are qualitative indicators that must be achieved, such as brand recognition, quality perception, customer relations, among others.
- Key Performance Indicators (KPIs) – these are quantifiable metrics such as market share stats, defect rates and customer satisfaction ratings.
Want to learn more about how to develop a value-based strategy for your company? CONNSTEP, Inc. is here to help guide you!
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