In this series of articles, we’ve been talking about some of the value drivers business owners should focus on that will help them sell their companies (either wholly or partially) at the highest possible price. Among these value drivers are quality financial statements and management team depth.
Another key value driver is the degree of competitive advantage your company holds over other businesses providing the same or similar products and services. It’s critical to determine what sets your company apart from your competitors — and then focus on strengthening your competitive advantages during the months and years leading up to your planned sale or other liquidity event.
What’s Your USP?
Competitive advantage is also sometimes referred to as a Unique Selling Proposition, or USP. It’s not always easy for business owners to determine their USP. Here are a few questions to ask as you think about your company’s competitive advantages and USP:
- What are some things your company does better than anybody else? Maybe you provide superior service, or super-fast delivery, or outstanding quality.
- What do customers say when asked why they do business with your company? Have you ever even asked them this question?
- Do you cater to a micro-niche that your competitors aren’t as equipped to serve? If so, you can set your company apart by establishing expertise in this micro-niche that makes you the go-to resource for these customers.
- Do you have exceptionally strong vendor relationships? This could enable you to establish a competitive advantage in terms of being the most reliable provider of products and services in your industry.
- Stronger USP = Higher Value
When considering acquisition targets, buyers will look closely to see what kinds of competitive advantages companies have. The stronger your USPs, the more valuable your company will be in the eyes of acquirers — and the higher price it will command.
Conversely, acquirers typically do not view companies without strong competitive advantages nearly as favorably. A business that lacks a strong USP is usually considered to be a commodity company that must compete primarily on price in order to grow market share.
While this may very well be a viable business strategy, it usually doesn’t offer as much growth and profit potential as a business with strong competitive advantages. That’s why acquirers generally ascribe a lower value — and are willing to pay a lower price — for such companies.
Is Your USP Sustainable?
Another question acquirers usually have with regard to competitive advantages is how sustainable such advantages are. If a competitive advantage or USP isn’t sustainable over the long term, then its benefit and value to acquirers is minimized.
The best example of this is a competitive advantage that’s reliant on the owner himself or herself. For example, if one of your USPs is your strong personal relationships with your vendors and customers, this advantage will obviously disappear once you exit the business. Therefore, you should strive to replicate these relationships among your key executives and managers who will remain with the company after you’re gone.
How We Can Help You
At Strategic M&A Advisors, we help owners of closely held businesses identify value drivers that can increase the value of the company to potential acquirers, as well as the company’s selling price. This includes helping you identify competitive advantages and USPs like those discussed here.
To schedule a free, no-obligation consultation where we can discuss the particulars of your business in more detail, please contact us at (601) 714 -2777.
Posted on behalf of Strategic M&A Advisors
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