Emerge Dynamics Podcast

This episode of Emerge Dynamics is a continuation of our series about understanding how much your business is really worth. This time, we’re discussing recurring revenue and monopoly control. Recurring revenue and monopoly control are drivers of your business valuation just like Switzerland and hub and spoke, as discussed in the previous episode.

First and foremost, it’s important to drive home the point of removing yourself from the day-to-day tasks and work on your business. Your time should be spent building processes, supporting your team, and inspiring your team. It is risky to build a business that relies on you working in it instead of on building it.

Recurring revenue is tied to both your financial performance and your growth rate. Recurring revenue takes into account the likelihood that the money coming into your business will continue. The recurring revenue your business generates may differ depending on your business model. For example, businesses with subscriptions tend to have solid recurring revenue.

There are different levels of monopoly control. The more your business has a compelling differentiated value proposition, the more customers will view you as the only option for attaining your incredible product or service. Knowing why your customers buy from you as opposed to your competitors helps you gain higher control.

When you go to the grocery store, you’ll come across items that are essentially the same—for example different brands of the same beverage. What you spend your money on is swayed by the marketing. Just like your customers, you’re buying based on the experience you’re getting from purchasing the product, and not just the product itself.

What are the things that drive the value of your business, and how can you make a positive impact on the worth of your business? Today we’re continuing our series on business valuation, and focusing on the main drivers so you know the right action steps to take to reduce the risk rate inside your business.

How many customers, vendors, or employees your business is dependent on is going to greatly impact the valuation of your business. This dependency can become problematic and increases the risk rate of your business. You may have a star employee, but having one person generate most of your sales is not great for your business.

The same idea stands for any business that is heavily reliant on one vendor. Vendor concentration is more important now than it used to be in previous years. In our post-covid world, vendor diversification is crucial to getting what you need to continue working effectively as a business.

The other important aspect to understand is how much the business depends on you as the business owner. Being involved in the day-to-day tasks of your business is not good for your business valuation. You want to be working on your business, not in your business. If you can’t go on vacation and turn off your phone without worrying about your business, you have a hub-and-spoke problem.

A great place to start improving the valuation of your business is to build a system and process that allows all employees to be great at what they do. If you see an employee exceeding above and beyond their peers, figure out a way to capture this in your training to bring the whole team up to the same level.

On this episode of Emerge Dynamics, we’re continuing the series about how much your business is really worth, including passing along actions to improve the valuation of your business. It’s important to remember that value is in the eye of the beholder. Regardless of how you calculate a typical valuation, there is always a value in the mind of the buyer and seller.

We like to focus on intrinsic value, which is a function of calculations made of three main components: cash flow, growth rate, and risk. Risk is defined by the likelihood of growth and continued cash flow. The higher the risk, the lower the value. The higher the growth rate and cash flow, the higher the value.

There’s often a disconnect between what a buyer is willing to pay and what a seller is willing to accept out of the transaction. In most situations, a compromise has to take place, in addition to a lot of back-and-forth conversations. A good advisor knows how to close the gaps and help people perceive and understand what gaps can be closed.

Many things you can’t control, like market changes, can influence a transaction. You have to focus on the things you can control. You can set yourself apart by de-risking your company, leading to an exponentially greater outcome for you despite what’s happening in the marketplace.

There are many different goals and outcomes you can consider for your transaction. You want to get the highest multiple you can, regardless of the timing of the transaction or the market circumstances. Customer concentration is important to focus on, along with other strategies you’ll learn later in this series.

Eric and David go over one more point about Strategy and then dive into Tactics and Actions.  When more than one person is accountable, no one is.

What is the best way for a business to develop a strategy?On this episode of Emerge Dynamics we’ll be discussing several frameworks for strategy while highlighting the pitfalls of giving this lip service. Once you know your purpose, vision, and objectives, it’s time to start putting a strategy in place. Your strategy is the “how” of your business, and once you understand your strategy, it informs how you articulate and refine your objectives.

Knowing what your strategy is and isn’t is crucial to understand before creating one. Your strategy needs to make you stand out from the competition and clearly be something you can not only execute, but execute better than anybody else. Whether you acknowledge it or not, your differentiation does matter to your customers.

If you want some insight into your strategy, ask yourself: “why do customers choose to buy from me?” A Blue Ocean Strategy helps you avoid turning your industry waters red with competition. If you can create an offer people want and bring it to customers in a unique way, you’ve got a way of navigating the competitive landscape.

Many organizations go from vision to action without implementing a strategy. Your actions and tactics are easier to lay out when you have a strategy, especially as a team driving towards big-picture goals. Without this, you’ll end up with tactics that may or may not fit or work for your business.

Knowing and investing in your core competencies is a critical part of building your strategy. If your business strategy is not where it needs to be yet, find someone who can facilitate this process with you. It’s not impossible to do it on your own, but it’s more difficult if you don’t have an expert walking alongside you. Once you have strategic planning in place, you can move into execution.

Strategy quote

On this episode of Emerge Dynamics we’re talking about objectives, which is the next step in working through our dream planning framework. We’ve already discussed mission and purpose, and now it’s time to move onto the next important aspect. Dream planning is a lot like strategic planning, but it is more focused on the perspective of what you’re trying to accomplish.

It’s important to know your three must-have objectives to help you meet your mission. These are the things that have to happen to bring your business vision to life. Generally speaking, your objectives are planned out between a one-to-three-year time frame. Why three? It’s easy to make a list of six or seven, but this can muddy the water of what you need to be focusing on.

Whenever you can, you need to set objectives that are measurable and accountable. As a business owner, you don’t need to be solely responsible for meeting your objectives. Give one senior team member the accountability and overarching authority to execute. Why one? Because when more than one person is accountable, no one is accountable.

Facilitation can be powerful when you’re defining and creating your mission, purpose, and objectives. It’s not always the best idea to choose someone on your team. When you choose a third-party facilitator, they can bring a specific set of skills and see your business from an unbiased perspective.

Creating your business vision is qualitative, whereas creating your objectives is more quantitative. It’s a concrete space to define the action steps the company needs to take and who is accountable for what. We’ll be moving into strategy next, which is going to be crucial for helping you differentiate and set you on a course to scale.

Some quotes from our discussion….

Alice: Would you tell me, please, which way I ought to go from here?

-Lewis Carroll’s Alice in Wonderland