Deciphering Business Value: The Ultimate KPI for Founders

As entrepreneurs, you’re often consumed by the daily grind of running your business, from managing teams and satisfying customers to maintaining partner relationships and driving growth. Amidst the intense activity, it’s crucial to take a step back and assess the true value of your company. 

As Alan Miltz states, “Revenue is vanity, profit is sanity, cash is king, but value is the emperor over all kingdoms.”

Value is the ultimate KPI every founder should focus on. Here’s why:

  1. Gain easier access to growth capital. Fuel your expansion with the right financial resources without unnecessary hurdles.
  2. Attract and retain A-Players. Become a magnet for the best in the business.
  3. Forge stronger vendor and partner relationships. Elevate your standing and create win-win scenarios with top-tier collaborators.
  4. Navigate mergers and acquisitions smoothly. Use your enhanced value as a strategic tool in scaling your business.

From operational autonomy to future growth potential, let’s explore the eight drivers of business value and uncover actionable strategies to increase your company’s valuation. These Drivers will affect the value of your company to investors, lenders, prospective buyers, and other stakeholders.

The Entrepreneur is Redundant

How well do day-to-day operations run without you?

At the heart of every successful business lies operational autonomy—the ability to run day-to-day operations seamlessly without constant oversight from the business owner or entrepreneur. Businesses that prioritize building robust systems and empowering their teams to make decisions independently are better positioned for scalability and growth. By delegating tasks, establishing clear processes, and fostering a culture of accountability, entrepreneurs can free up their time to focus on strategic initiatives while their teams drive operational excellence.

Questions for reflection:

  • Do you have an accountable leader for each function of your business?
  • Can you leave for three months with minimal disruption to the business?
  • Are you confident one or more executives could run the business in your absence?

Download the full Value Driver’s checklist here.

Strategic Planning

Do you regularly schedule time for strategic planning with the leadership team?

Strategic planning serves as the roadmap for a company's journey toward its goals. Regular strategic planning sessions with your leadership team are a critical driver of business value. One of the most important things investors focus on is your strategy and how well you have executed it. By setting aside dedicated time to assess market trends, identify growth opportunities, and align organizational objectives, you can make informed decisions that propel your businesses forward. Strategic planning isn't just about setting goals—it's about charting a course for long-term success and adapting to evolving market dynamics.

Questions for reflection:

  • Have you spent at least 3 years creating and executing a strategic plan?
  • Does your strategy drive yes and no decisions?
  • Does your story, financials, and KPIs validate the thesis of your strategy?

Download the full Value Driver’s checklist here.

Customer Concentration

How diversified is your customer base? How resistant is it to changing trends in the market, industry verticals, or competition?

Customer concentration poses a significant risk to businesses, particularly if a few key clients account for the majority of revenue. When investors are looking to invest, they’re thinking about the future, considering potential outcomes and risks. When a single client accounts for more than 15 to 20 percent of a company's total revenue or profits, the departure of that client poses a substantial risk, potentially exerting significant downward pressure on the company's financial performance. 

Diversifying the customer base is essential for reducing dependency on individual clients and safeguarding against market fluctuations. By expanding into new markets, targeting diverse industry verticals, and nurturing relationships with a broad range of customers, your company can mitigate risk and enhance your resilience in the face of changing market conditions.

Questions for reflection:

  • Does each customer make up at most 15% of your annual revenue?
  • Do you have the right industry mix to maximize revenues and manage risk?
  • Have you weathered past economic cycles profitably?

Download the full Value Driver’s checklist here.

Recurring and Predictable Revenue

How consistent and predictable is revenue from the same customer group growing?

Predictable revenue streams are the lifeblood of any business, providing stability and security in an uncertain world. The importance of cultivating recurring revenue models, such as subscriptions or service contracts is a key driver of business value. The more you can demonstrate you have annual recurring revenue versus episodic- or project-based revenue, the more valuable you're going to become. By establishing long-term relationships with customers and delivering consistent value over time, you can minimize revenue volatility and increase investor confidence, thereby strengthening your position in the market.

Questions for reflection:

  • Does your business model incorporate a subscription or multi-year agreement that locks in 80% of your revenue?
  • Do you have clients who have purchased from you repeatedly for years?
  • Do your customer purchasing trends show minimal impact from economic and geopolitical events?

Download the full Value Driver’s checklist here.

Systems and Processes

How well-documented are your systems? How disciplined is your team in following them?

Efficient systems and processes are essential for driving operational excellence and maximizing productivity. Businesses that prioritize documenting and optimizing their workflows are better equipped to scale and grow. If you can demonstrate that your business is a well-oiled machine, you’re going to increase your odds of commanding a premium for your valuation. Additionally, it signifies that your processes are not just documented, but crafted to suit your unique strengths, enabling you to deliver your value proposition in a distinctive manner.

By standardizing processes and automating repetitive tasks to streamline operations, your company can improve efficiency, reduce errors, and enhance the overall customer experience. Investing in systems and processes isn't just about saving time—it's about laying the foundation for sustainable growth and long-term success.

Questions for reflection:

  • Have you honed “our way” for 80% or more of your processes?
  • Do you rarely have operational emergencies?
  • Are you confident that new employees quickly learn to do the job by leveraging your process documentation?

Download the full Value Driver’s checklist here.

KPIs or OKRs Tracked and Displayed

How well do you track and make visible goals and daily operation measures for the company and individual departments using KPIS and/or OKRs?

Key performance indicators (KPIs) and objectives and key results (OKRs) provide valuable insights into your company's performance and progress towards its goals. If investors can glance at your business and see how it's doing without having to dig deep, it gives them more confidence in their decision making. By monitoring key metrics, identifying areas for improvement, and making data-driven decisions, you can optimize performance, drive continuous improvement, and achieve your strategic objectives.

Questions for reflection:

  • Does every department have leading and lagging KPIs?
  • Does each leader know their accountable measures and understand how the leading measures drive performance?
  • If a stranger walked into your operations, could they quickly understand how well each department performs?

Download the full Value Driver’s checklist here.

Growth of Profits and Gross Margins

How effectively are you growing revenues and your gross margin percentages?

Profitability and gross margins are fundamental metrics that directly impact a company's financial health and sustainability. Businesses that focus on growing revenues while maintaining healthy margins are better positioned for long-term success. Remember, consistency is key. It’s better to grow 15% year-over-year compared to erratic growth patterns such as  25% one year, losses the next, followed by spikes to 35% the next, then drops to 10%. By optimizing pricing strategies, controlling costs, and maximizing operational efficiencies, you can enhance profitability, strengthen your financial position, and create value for shareholders. Profitability isn't just about making money—it's about building a resilient and thriving business that can weather any storm.

Questions for reflection:

  • Are you consistently growing revenues year over year?
  • Are you maintaining and expanding gross margins?
  • Is your growth rate consistent?

Download the full Value Driver’s checklist here.

Future Growth Potential

What is the size and growth potential of the segment you compete in?

Anticipating future trends and growth opportunities is essential for staying ahead of the competition and positioning a company for long-term success. Your ability to tell a unique story can make a difference in how your company is valued. By identifying emerging trends, exploring new market segments, and capitalizing on untapped opportunities, your company can unlock new avenues for growth and maximize its potential in the marketplace. Future growth isn't just about following the trends—it's also about shaping the future and carving out a competitive advantage in an ever-evolving landscape.

Questions for reflection:

  • Do you understand the size of your total addressable market?
  • Are you aware of how you stack up against the competition in other markets?
  • Have you anticipated the trends that will positively and negatively impact your industry’s growth rate?

Download the full Value Driver’s checklist here.

From operational autonomy to future growth potential, each factor plays a critical role in shaping the success of your company. By prioritizing the eight key drivers of business value, you can position your business for long-term success and create sustainable value for shareholders, employees, and customers alike.

Ready to find out how well you maximize the value of your business and drive sustainable growth? I'm excited to offer you the chance to unlock success the RISE way. Take this survey to understand where you currently stand and what you need to focus on as you drive business value.

Take the Value Driver's Survey

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