Predictably Creating Value

Driftwood
Creative Commons License photo credit: nagillum

As I read the story about the success of logger James Stupack’s new business, it struck a chord with me.

I was quite pleased to hear of his creativity and stick-to-it attitude. It’s easy to give up. He didn’t.

He added value.

I’ve spent a lot of time talking to folks locally about doing the sort of things Stupack did to add value to a commodity product.

Sometimes it comes in the form of a question, like “So..if I’m in Atlanta and I want fancy columns for my timber-frame home – why would I buy a log from you way up there in Montana when there are perfectly good trees here in Georgia, South Carolina and so on? Either way when I get it here, I’ll have to pay someone to add character to it.”

Stupack answers that question by specializing in making his commodity into something far more valuable than “just a log”. It’s especially cool that these just happen to be the same logs that might have been left to rot (or burned as firewood/slash) in the past.

Not always a commodity

Sometimes what you sell isn’t a commodity, such as tech (software development, web design, graphic design, etc) or services like oil changes, small engine repair, or even musical instrument cleaning and refurb.

So how do you create value for something like that, especially keeping in mind that you’ll probably want to sell your business someday.

One threat to your eventual sales price is that you’ve created a job rather than a business. If that fits your lifestyle, that’s fine – but most business owners have the idea that they will someday be able to sell their business.

In order to make that happen – and not have the buyer’s bank laugh at the sales price – you have to demonstrate some value that even a banker would love.

In the case of a retail store that sells snowmobiles, jewelry or water heaters, historical sales trends will give the prospective buyer (and their banker) some numbers to make sense of.

That customer list thing again

But for that service business, many owners find themselves looking for a buyer and having nothing valuable to sell except their customer list, if that.

Quite a few don’t have a customer list. We’ve talked about that many a time. To repeat: you should have a list of customers and contact information so you can reach them in an emergency. Or a non emergency…

Even with a huge list of customers, you aren’t going to get much interest from the banker unless you can prove recurring sales.

If you have data (and you should) that shows average frequency of purchase for your customers, average sales for that purchase interval, then they’ll be a little happier.

What you want to aim for is a way to show them dependable revenue even if you (but not your staff, if any) disappear for a month.

How so?

In the case of a graphic artist, you might sell your icons and artwork online, as handmade prints on Etsy.com, or in a litany of other places. You might still do custom work for clients, but you have a cadre of products that sell even if you don’t have ANY custom work going on.

The same goes for other tech services businesses. The software consultant who works on an hourly or project basis but has no software on the market is worth almost nothing when they can’t work. The same goes for the amazing web developer and similarly skilled folks. Both of them have done little more than create a job for themselves but are not building equity in their business. If contract work dries up, so does their wallet.

The oil change place is usually smart enough to solicit fleet work, such as changing the oil and providing other regular maintenance to city, county or corporate fleet vehicles. Even if they don’t see a retail customer this week, that fleet work will help them meet their nut for the month.  Those fleet customers are valuable because their business is PREDICTABLE.

The same strategy is just as effective for the musical instrument sales and repair shop.

Buyers and their bankers love predictable, especially when we’re talking about income.

These days, a lot of buyers are replacing a job they’ve lost. Having a business that can replace their income in a predictable manner is going to make your business more attractive to buyers – and in the meantime, it’ll do a lot better job of taking care of you.

5 thoughts on “Predictably Creating Value”

  1. When it comes to that customer list, having a CRM is always a good idea. If your primary business valuation is on a book of business, a historical record of sales activity could boost the sale price.

  2. I agree with you when you say sometimes what you sell isnâ??t a commodity. This is true, and sometimes it is up to you to create value for what you are selling and your business.

    Showing historical sales trends or having data that displays average frequency of purchase for your customers are definitely some effective strategies to accomplish this. People will be more interested in buying your business when you can prove your income is predictable.

  3. Like Kerry, I also agree that what you sell isnâ??t a commodity. There are ways that you can make it interesting or attractive or make it stand out among the rest of the product that is just like it. You just have to get your mind working and bring out that creative juices.

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