How we help Canadian Manufacturers de-risk revenue to increase enterprise value.
Many small-but-mighty manufacturers keep Canada’s economy moving forward.
The Owner/Operators of these Canadian Manufacturers tend to be talented and passionate craftspeople, who have worked diligently to build a quality product and provide excellent service.
After decades of growing revenue, creating jobs and churning a profit, these Owner/Operators know they have a good business. After decades of shouldering 24/7 responsibility, they start to wonder “how valuable is my business?”
Unfortunately, with the blood, sweat and tears they’ve put into it still vivid in their minds, they can be disappointed with the valuations they receive for their small-but-mighty manufacturing enterprise. They’ve built a good business at great personal sacrifice – shouldn’t their enormous effort add up to an enormous price tag?
Not necessarily. The value of an established business is generally determined by the predictability of its profitability or, in other words, free cash flow.
When the annual earnings or profit of two Canadian Manufacturers is equal, the difference in their value comes down to the difference in risk associated with its business model (and therefore risk to its free cash flow.)
As risk associated with the business model increases, enterprise value decreases.
Just like a stock. Higher risk, lower price, ergo higher reward (if the risks don’t become reality.)
Rarely do Owner/Operators have the luxury of building the ideal business model from the start. Like most small businesses in their early years: they take the opportunities available to them. Then, by doing great work that leads to a lot of word-of-mouth marketing, these Owner/Operators get too busy serving their growing customer base to chart a course for the future. They’re trapped, for many, many years, working in their business.
Whether it’s due to a brief relief in demand or a growing sick-and-tired feeling, eventually these Owner/Operators do lift their head up from the day-to-day and begin to wonder what their business is worth and if they could make it more valuable tomorrow.
For Owner/Operators of Canadian Manufacturers (CMs) specifically, one of the greatest opportunities to increase enterprise value is by de-risking their revenue streams.
This is where we come in.
We help Canadian Manufacturers de-risk their revenue streams to increase enterprise value through three strategic initiatives:
- Strategic Diversification: Attract more of the right customers
CMs tend to generate a bigger slice of their revenue from their biggest customer than other small Canadian businesses. The bigger the slice the greater the risk. Revenue from a larger, less-concentrated customer base puts a premium on enterprise value because it’s more stable, more predictable and less risky.
But not all customer segments are equally valuable to a business.
CMs may have many more customers from one segment than any other, but that doesn’t automatically mean they create more value (free cash flow).
CMs may have customer segments who spend more money than other segments on average, but if they are more difficult and costly to serve (e.g. require constant hand-holding, demand service levels beyond what they paid for etc.) then the revenue they generate may not be as valuable than less revenue from easier segments.
CMs may currently rely on a customer segment that buys a lot from them today but will buy increasingly less over time as their market shrinks.
We work with Canadian Manufacturers to determine “Who could be your most valuable customer? What operating systems would better serve them?”
- Strategic Optimization: Sell more of the right products (and services)
Many CMs have the opportunity to grow more profitably by selling fewer products of higher value. The more products they sell, the more complex it is to operate, the harder it is to penetrate new markets, the more direct competitors they face. And so on and so on…
Often with products, less is more for small-but-mighty Canadian Manufacturers.
The trick is choosing which products to keep as some create more value than others.
We work with Canadian Manufacturers to determine “Which products create the most value for your business today? Which products matter most to the right customer? What complimentary, high-value products would be of interest to the right customer?”
To help Owner/Operators answer these strategic questions, we take on the tedious and time-consuming task of gathering, integrating and analyzing a mountain of disparate information, in a variety of formats, across staggered time-frames in a way that produces reliable results.
Once we’ve identified the right customer and the right products, we recommend Canadian Manufacturers use these findings to invest strategically in their branding, marketing, websites and social media pages.
The typical CM grows modestly year over year despite lacking many marketing essentials.
A little investment in this arena can go a long way in creating additional enterprise value.
- Strategic Organization: Delegate more of the right responsibilities
The profitable operations of virtually all small Canadian businesses rely too much on the Owner/Operator. It could be the personal preference of the Owner/Operator who’s proud and protective of what they’ve built. It could be that delegating day-to-day responsibility to their team was too far outside of their core skill set to feel confident in their decision making.
In any case, enterprise value is severely discounted when operations rely on the Owner.
The introduction of new products, revenue models and/or marketing systems is a fantastic opportunity to move responsibility from the Owner to employees. The typical Owner/Operator is responsible for the lion’s share of sales. But new sales and marketing systems will be new to everyone – meaning the Owner/Operator won’t be able to “do it faster” than employees.
We work with Canadian Manufacturers to determine “What is the right workflow to achieve these sales and marketing objectives? Who is the right person on your team to take on each step?”
By helping Canadian Manufacturers de-risk their revenue and delegate responsibility for new sales and marketing workflows to employees, Owner/Operators increase enterprise value.
In other words, they make more but stress less.