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Valuing your business: it's not always about the numbers



Entrepreneurs often get financial tunnel vision, focusing intensely on revenues, profit margins and growth projections. While these are important metrics they don't always reflect the full value that a business has created. Sometimes the most valuable parts of a company haven't yet been translated into financial figures.


Sam Walton's zero revenue moment

Consider the story of Sam Walton, the founder of Walmart. In his early days, Walton poured years of effort into developing his retail concept. He fine-tuned his pricing strategy, supply chain operation and customer experience. However, before Walmart became a household name, Walton's landlord decided not to renew his store's lease. In an instant his revenues went to zero.

Did that mean Walton's business was worthless? Absolutely not. While his financial statements might have shown no revenue, the value he had created was massive. His knowledge of the sector and the retail concept that he was developing would soon become the foundation of the world's largest retailer, which today is worth $560 billion.


Uncovering hidden value: three scenarios

Walton's story highlights a critical point: business value can exist even when it's not immediately reflected in the numbers. Here are three common scenarios where this happens in the technology space:


1. Long sales cycles: Some businesses, like enterprise software, have long sales cycles. You might have a product that customers love, but if the time from initial interest to closed deal is a year or more, your financial statements might not yet reflect that success. Developing the right products for a given market and proving that there is customer demand implies real value. The marketing and sales muscle needed to scale is another component of value, which should not be confused with the first one. Combining your product development capabilities with a partner that has a powerful B2B sales engine can help realize the value that’s already there.


2. Large user base: Many tech companies build massive user bases through free offerings. While converting these users into paying customers can be challenging, a large, engaged audience is a valuable asset. It demonstrates that there is a real problem -or a real opportunity- in a large market, and that the company can effectively communicate with and attract users. In order to bring this value into the company’s P&L, perhaps the monetization strategy needs to change or the product portfolio needs to be expanded to include third party solutions. 


3. Data: In the age of AI, data is an immensely valuable input to model training. Your company might possess unique data sets, customer insights or usage patterns that could be of huge value to other businesses. By exploring partnerships or data licensing agreements, you can transform this hidden value into tangible revenues and profits.


Stepping back

It's easy to get caught up in the day-to-day grind of running a business. And if revenues are not growing at the speed you expect, the natural inclination might be to work even harder on existing growth initiatives. 


But taking a step back might be the better move.


Ask yourself: what does my company do better than anyone else?


The answer to that question could surprise and guide you. Just like Sam Walton, your core competency might be applicable in a variety of ways, not just the one you’re engaged in at the moment.


Even if you're not able to execute the potential new approach yourself, others might be. Strategic partners or potential acquirers may recognize the value you've created and be willing to pay for it.


In conclusion, revenues and profits are essential to business value, but they don't always tell the whole story. By understanding what is truly unique about your business you might discover hidden value, which can be realized by knocking on the right doors. 

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