Doubling Your Business Valuation: Building Business Success with Deep Domain Alignment
Business Valuation

To understand your business success – measure the “value of your business”.

You can use different methods to measure the value of your business. Your accountant and your business consultant can provide guidance if you want a valuation of your business. One commonly used metric for calculating business valuation is to use your annual pre-tax profitability as a base and apply a multiplier to that base. For example, we often see [the metric] “pre-tax profitability” multiplied by [the multiple] 3 or 4…and sometimes you will want to apply a multiplier much higher than 3 or 4. The multiplier varies with industry sector: high-tech sectors typically have higher multipliers than traditional business sectors.

As an illustrative example:

  • Business type – energy management service company
  • Annual revenue – $5,000,000 [stable and growing over the last 3 years]
  • Pre-tax Profitability – $1,000,000 [average over the last 3 years]
  • Valuation – $1,000,000 X 4 = $4,000,000

Of course, you should consider other crucial factors when you or others evaluate your business. The performance strengths of your leadership team and your employees will affect valuation. Market demand for your product/service offerings will affect valuation. Your supplier and customer arrangements and relationships will affect valuation. Your business valuation will be higher when you prove you understand your customers’ needs and prove you have served and satisfied those needs. Understanding and satisfying customers’ needs proves you and your business are aligned with your customers.

Talking Your Customers’ Language: that is the fuel that powers your business valuation growth.

When your customers go about doing their jobs, they use words that are popular in their business/industry domain. The closer you can align your messages with the words used in specific customer domains, the greater the connection you will have with the people who work in those domains:

  • your company and its service offerings will attract a higher level of attention and interest,
  • your customers will have an easier time understanding the value you bring, and
  • the valuation of your business will increase.

There is more to it than “just talking” …

Experiential learning tied to specific domains is the key to success.

Experiential learning isn’t about the amount of time spent working in the domain, it’s about the depth and breadth of the insights and wisdom gained from time spent working in the domain. This has important small-business implications. Small business owner-entrepreneurs have unique opportunities to gain broad and deep insights into specific areas of their industry domain.

Another thought – In general, people buy products and services to achieve business outcomes. Consequently, as a rule: when it comes to final purchase decisions, IT/tech products and services are not purchased by IT/tech people, business people purchase them.