BUILDING STRATEGIC VALUE THROUGH INNOVATION
I recently presented to a group of business owners and managers from training and education businesses - Registered Training Organisations - from the Sunshine Coast and beyond. This blog summarises some of the key ideas presented.
Strategic value is concerned with building assets and capabilities that create a competitive advantage. The strategic value may be recognised in a business sale when the buyer sees the potential to generate a greater return from these assets and capabilities and pays a premium to acquire the business and the strategic value it has developed.
Small businesses can tap into innovation to build strategic value, but first of all the business owner managers need to step back and consider their own personal and business objectives - greater clarity will boost business growth.
Begin with the end in mind
Photo by Riccardo Annandale on Unsplash
Many people put a lot of thought into how to start a business but fewer think about how they are going to get out of it. The danger is that we can all get busy focusing on the day to day - and perhaps become tired or even burnt out - and do not have a clear plan about how to get out of the business. At any stage if business development, it is helpful to think about what type of business are you building and what strategic value it has.
The concept of strategic value includes:
Building value that lasts longer than you, an asset that is not dependent on you
Creating value for customers
Boosting profits
Creating a competitive advantage
Creating something that is valuable to others, fore example investors, business partners or potential buyers via a strategic exit.
In this context, innovation has a key role to play in creating value. The are many definitions of innovation, one that I like to use is short and practical:
‘Innovation is executing new ideas to create value.’ Associate Professor Tim Kastelle
This definition - and check out Tim’s post on this also - emphasises that innovation is more than just having ideas, it is about generating ideas of value and most importantly making them happen.
In most small businesses, the owner manager plays a critical role and their personal objectives will influence the business objectives. Owner manager s need to consider their personal and as well as business objectives. Some questions for owner managers:
Personal objectives
What do you want to do for next 3 - 5 years?
What lifestyle do you want?
What impact do you want to make?
Do you want to work forever?
How much money do you need / want to get by?
Business objectives
Why are you in business?
What are you building the business for?
What sales and profitability levels are you aiming for?
Developing clear answers to the personal objectives questions - including how long you want to work for and financial returns you desire - will in turn influence the business objectives.
Once the objectives are clear, the business owner can take a look at the current and desired business position - Gap Analysis is a simple and useful tool to help. This will show the gap between desired and projected position. Innovation is a key route to fill the gap between the forecast and desired business position.
Innovation is not confined to products, technology or startups - it is relevant and needed at all stages of the business lifecycle. The ‘Ten Types of Innovation’ framework by Doblin is a very useful framework to help identify new opportunities to build value through innovation.
The Ten Types of Innovation framework can help business managers to identify opportunities for innovation to add strategic value to their businesses and clients.
Do you want to work forever? Developing an exit plan.
Working forever may sound like a ridiculous idea but many owner managers have no clear exit plan. One report from UBS found that 48% of business owners have no exit plan. Many others start thinking about exit plans and options when it is getting a bit late, perhaps when they are running out of energy or just a year or so away from retirement.
Registered Training Organisations (RTOs) in Australia are a specialised type of business, often they are complicated and take time to establish, they are regulated, design and develop their own training courses and materials and to keep these up to date. There are some specialised business brokers solely focusing on RTOs as well as more mainstream business brokers.
Many business sales are used on well established metrics such as a multiple of EBIT. Dr Tom McKaskill offers a very different view of business exits based on the concept of strategic exits:
‘A strategic venture creates exit value, not on the basis of what profit it could inherently generate, but on the basis of what future profit could be generated by the buyer exploiting the underlying assets or capabilities of the entity being acquired.’
Tom has published an excellent book on this topic called Ultimate Exits and this is available as a free download via this link.
In summary, the key ideas presented here for owner managers to build strategic value in their businesses are:
Develop clear personal and business objectives
Use Gap Analysis to plot business performance to date, project where you would like to be and identify the gap to fill through new initiatives and innovation.
Use the Ten Types of Innovation framework to help identify new opportunities for innovation to add value.
Get serious about your exit plan - consider timing and all options including a strategic exit.
A colleague, peer or business advisor can also help business owners to work though the process and focus on the strategic picture to build a business with real strategic value.
Colin Graham, Causeway Innovation, 18 March 2020