18 Mar 5 Ways Any Tech Company Can Build Value
There are a wide variety of factors that come into play when a buyer decides how much he is willing to pay for a business. The truth is that valuations are, in part, subjective because a business may be worth more to one buyer than another. However, there are some surefire approaches to building value that should work for almost any tech company.
#1 – Cultivate a Recurring Revenue Model
When it comes to ways to generate income, one of the most powerful approaches is a subscription service. IT companies such as MSPs and SaaS providers that are building a recurring revenue model tend to be more highly valued. This may require more upfront investment but each time you bring on a new customer there will be nominal additional costs to provide your services.
If your company has a recurring revenue model, be sure to keep up-to-date metrics. For example, you’ll want to know what it costs to add a new customer and how long it takes to on-board them, the rate of customer turnovers (churn), and the number of long-term agreements (total, monthly additions, etc.).
#2 – Focus on a Niche
When your IT company is focused on a specific industry or niche, such as legal or manufacturing, marketing can become laser focused. As a side benefit, there may be additional industry-specific products and services to offer that are attractive to your target customers and deepen your relationships. Of course, this strategy works better if you already have some customers and the niche has enough targets to support your growth plans. Keep in mind that a vertical focus may imply that you have to cover a larger geographic area.
#3 – Develop a Professional Sales and Marketing Team
Many small technology companies are weak in sales and marketing. The founder is often the leading salesperson and the team and business processes haven’t been developed to deliver consistent, profitable growth. If you’re not confident about reaching your target customers and converting sales, consider getting outside help. The end result will be a reliable process and sales pipeline that helps you grow your business and build value.
#4 – Build a Stable Management Team
When it comes time to sell your tech business, buyers will be interested in the depth and commitment of your management team. They tend to lose interest when they find out that the owner is running everything and there is no succession plan. That’s why it is so essential to build and maintain a motivated and stable team of leaders and managers.
#5 – Have Intellectual Property
The term intellectual property traditionally refers to legally protectable works. But even if you don’t own trademarks, patents or copyrights, there may be other assets you do have that add value and make your company unique. For example, if you developed a popular application or proprietary process, that gives you a leg up over the competition. It isn’t necessary to actually own assets that are legally protected, just be sure to document what you offer that gives you that competitive edge.