Most founders understand the need to build value in their company, but what does this look like in practice and how is it achieved?

There will be points in the lifetime of your company when its value will be assessed. These “valuation points” are typically on investment rounds and a final valuation on exit (whether sale or IPO). At each of these points in time you will want the value in your company to be as high as possible. This will give you the best negotiating position, whether you are negotiating with an investor or a potential purchaser on exit. 

If you ask a VC how they determine the value of a company ahead of an investment round, you will likely come away thinking it is a very scientific process. They may talk about various valuation methods, the need to analyse company and market data and perform a series of detailed calculations. But as many VCs would admit, valuing a company, especially the potential future value of a company, is as much an art as a science.

This post will not cover the typical valuation methods used by VCs such as the Venture Capital Method, Discounted Cash Flow, Scorecard or Berkus Methods, or the factors that VCs typically consider in determining a valuation number, such as market opportunity, competitive positioning, and future earnings potential. 

This post is about the mindset founders and executive teams should adopt to create value. Building value in a company doesn’t happen overnight. It is a process of creating something that investors will find valuable and compelling, ultimately leading to a successful exit. Try to spend some time each day thinking about the following areas in order to create value in your company.

Plan for exit from the start

It might seem strange thinking about exit before your business is barely off the ground, but this is the best time to be thinking about it. What would a purchaser or investor in your company expect to see on exit or an investment round, what would they expect to be in place?

Try to consider who would be interested in purchasing your company? Identify a specific potential purchaser if possible, or at least the type of organisation which might be interested in purchasing your company in the future. Keep them in mind as you strategise and plan your business. This is a valuable exercise and will help you focus on the important aspects of your company, including the differentiators, that a potential purchaser might be interested in.

Define what your company stands for

What is the core purpose, cause or belief that defines and drives your company? What do you hope that people will think of, or more importantly feel, when they hear the name of your company?

As Sinek explained in “Start with Why”, people are inspired by a sense of purpose which the best businesses can tap into. Think carefully about defining your company’s core purpose within the mission and values section of your business plan and then consider how this would translate into customers’ experiences of your company?

Customer case studies are a good place to capture this type of information. In the run up to exit, when you are supplying the potential purchaser of your company with various details such as customer lists, copies of contracts, order book and pipeline data as part of the due diligence process, make sure you also include copies of case studies which reflect your company’s core purpose.

Identify and continuously refine your USP

What is your company’s unique sales proposition? Asking yourself this question will ensure that you differentiate your offering from competitors and if you keep returning to it frequently will ensure you stay ahead of the competitive landscape.

Don’t just ask this question from a customer perspective though, ask it from multiple perspectives. Perhaps most importantly, ask it from the perspective of the hypothetical purchaser who might buy your company in the future.

What is it about your offering that is so valuable to them? How might acquiring your company give them an advantage or edge over their competitors? How are they struggling right now and what difficulties do you anticipate they might face in the future? How might acquiring your company help with this?

Think about all of your IP

You are hopefully already considering the core IP within your company, including how best to protect it and ensuring it is assigned to the company (if not please read more about this here) which is essential for a good valuation. However it is important to remember that IP is everywhere within your company, and includes more than just your core IP. 

Think about all of your processes, data, systems, documents, relationships and everything else that makes your company work. Be meticulous about documenting everything and foster an open and transparent culture so that information is captured accurately. People don’t normally like to capture or document their mistakes, but these can be as important as the things that go well. Try to capture the whole journey.

Also think carefully about not losing IP or letting it leak out of your company. It might seem easiest in the short term to get a partner, or multiple partners or even customers, to cover aspects of your business. But outsourcing in this way could mean that you are losing valuable IP, particularly if what you are looking to outsource is a key component of your technology or technical stack.

Build relationships for the long haul

Think about building long term relationships. Not just with customers, although this is obviously important, but also employees, suppliers, alliance or implementation partners and anyone else connected with your company. It takes time to develop key business relationships, and these are valuable and will drive the sustainability and predictability of your business going forward.

How can you maintain these relationships or forge even closer connections? Consider negotiating sole distribution rights with suppliers and developing alliance partner programs. As a minimum you should be identifying all stakeholders connected with your company and maintaining a list of all engagements with them.

Plan for predictable, repeatable revenues

Develop a revenue engine that can deliver predictable revenues that you are in control of. Even if you lack resources currently, demonstrate that this engine could be ramped up to deliver even more revenue.

Plan for the company to run without you

Plan for your own exit from the company. Imagine someone else running the company in your place and build solid, repeatable and documented processes that don’t rely on you. 

Thinking in this way will ensure that you have conveyed the essential knowledge into the company for its ongoing survival and growth. It will also ease the emotional process when it comes time to see your company making its own way in the world without you.

Always deliver on your promises

Young companies can struggle with delivery. With so much going on, so many calls on your time and so many potential distractions it can be hard to stay focused. But you must stay focussed on your commitments and ensure you deliver anything that you have promised to deliver, so think carefully before you overcommit.

You can defend a higher business valuation if you have a reputation for always delivering on your promises.