In a constantly changing financial climate, it’s important to
understand the future of your business, what is affecting your value, and why. Though as a business owner you’re likely proud of the results you’ve achieved in the past, when it comes to the future value of your business, preparation is critical.
Growth potential is one of the 8 value drivers that acquirers use to evaluate business purchases. What they really want to know is how easy it will be to grow, and what major limiting factors will impact that ability.
One key performance indicator that could be used to evaluate growth potential is your revenue per employee. For example, Alphabet (Google’s parent company), generates around $1.3 million in revenue per employee, whereas, the advertising agency WPP group has an average revenue per employee of around $100,000. That means that WPP needs ten times the employees Alphabet does to generate that much revenue.
WPP has grown slower because it takes time to recruit, train and motivate people. Compared to a less people-heavy company, they suffer from much lower valuations.
Other ways that acquirers could assess your growth potential is risk analysis, if there is a large problem looming on the horizon creating risk for an industry, or an opportunity to enable growth for others, having a ready solution leads to massive growth potential. Verizon’s recent acquisition of Skyward is a good example.
Jonathan Evans first started the company Skyward in 2012 due to observing how companies like Amazon or Walmart used drones for package delivery. At the time, Evans worked as an air ambulance helicopter pilot and soon realized that using drones at a large-scale level would eventually create air safety issues.
Seeing an opportunity where others hadn’t, he launched Skyward which was a software with the purpose of safely routing drone traffic. Though he didn’t have experience in programming, his experience within the aviation industry helped him understand how the current airspace management guidelines could be turned into applications that created “digital train tracks” for drones.
Right away, he gained the attention of early adopters such as utility, construction, and media companies that used the software to manage their drone fleets. He also attracted the interest of investors. Within a few years of the launch of Skyward, Evans had already raised approximately $8 million.
Of those various investors was the well-known company Verizon. In order to operate safely, drones would have to have a stable and quick connection to the Internet, and Verizon wanted to help be a part of the future. The synergy between the technology that Verizon owned (cellular network) and the software developed by Evans created a package product that created a solution to airspace management problems for commercial drones.
Though Evans had no prior experience in programming, he realized the critical takeaway was that the value of your business is not determined but what you have done in the past, but what you can help others do in the future.
Having a company that is positioned for growth makes your business more valuable in the event that you want or need to sell.