Creating a C-suite to build equity value

If you own a knowledge-led services firm in a sector such as consulting, IT services or media and you want to grow revenues to, say, $30m, it is unlikely that the expertise of the founders will be able to drive this. What you need is a team of specialist C-suite executives on board.

However, at some stage a founders-only team will put a break on growth. Here are three reasons why founders maintain the status quo and fail to see the damage it may be doing to their business:

  1. Growth creeps up on you so you don’t notice the degree to which the requirements have changed

During the start-up phase your main focus will be delivering on your particular domain expertise, but as time goes by you’ll spend more time on anything from finances to dealing with people issues.

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Answering your questions on Intellectual Property (Part 1)

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We recently held a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’ve been sharing and answering these questions in a series of blog posts. This week we’re looking at the questions asked during the webinar on how well-managed intellectual property (IP) can enable your consultancy to scale and command a premium price at sale.

1. Can you explain further about the need to protect IP trade secrets and yet still provide the depth of information necessary to market the business?

It is important for consultancies to share high-quality articles, presentations, reports and materials with clients and prospects. Doing so will help consultancies demonstrate industry knowledge and domain expertise. A large percentage of your IP should be readily available to prospects and other stakeholders.

But how do you control access to trade secrets? The foremost priority for any consultancy in such a situation is to understand: (a) who needs to know (b) who needs to have access and in what format? (c) who controls the access to these trade secrets? While there isn’t a shortage of senior executives in charge of marketing, operations, etc., it surprises us how many consultancies fail to assign someone to manage IP. Therefore, appoint a senior member of management to control IP and make sure that they come up with a plan to address the considerations above.

To guard against the misuse of IP firms should make use of non-disclosure agreements and non-compete clauses in employment contracts for when employees leave the business. Internally, consultancies should make clear to staff what it considers IP and train them on how to use and store it safely. Then, the company should enforce this rigorously within the organization.

Why not click here to learn more about how to build intellectual property to drive equity value in your consulting firm.

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Don’t sacrifice equity value for business growth when you can have both

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By Adam BlatchfordAssociate, Equiteq.

You make decisions every day on the direction of your business, but while you work hard to scale your revenue, are you also scaling your equity value? Or could that value be eroding behind your back? Smart scaling is all about having confidence that your decisions are safeguarding that value in the future, and increasing the likelihood of a successful sale.

It is important to consider the future buyer and M&A market appeal of your business, and how your decisions will attract or repel those buyers. When you make decisions there are always trade-offs; understanding what buyers are interested in can help when making the strategic decisions to guide your business and grow your equity value.

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Sales and profit growth (Part 2)

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the final part of the Q&A session during the webinar on what your company’s sales and profit numbers say about how you run your business. You can read the first part here. 

  1. Which is more valuable to a buyer, a consultancy with (a) a lot of clients with lower revenue per client, or (b) fewer clients with higher revenue per client?

Client concentration is a risk for any organization. Buyers would be worried if your consultancy is earning 70% of its revenue from a handful of clients. This would cast doubt on whether the business would be able to sustain its current revenue levels should any of the clients leave or cut back on their spending.

The quality of your clients is a critical factor for attracting buyers, and it is important to have key clients that demonstrate your ability to service and sustain such relationships. However, spreading client concentration shows buyers that your offerings have the potential to be applied to their clients as well, and that your firm has resilience in its target market.

Tip: Try to diversify your client concentration and offerings as suggested here in our eight essential tips for planning for growth and exit.

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Sales and profit growth (Part 1)

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the first part of the Q&A session during the webinar on what your company’s sales and profit numbers say about how you run your business.

  1. What is more important in terms of growth – revenue or profit?

The answer is both! Ideally a buyer wants to see that an acquisition target can grow the top line while maintaining the profit margin at a healthy level (around 15% – 20% for most consultancies). Some consultancy buyers may pay closer attention to revenue growth, as this shows scalability of the business and post-acquisition, the profits will change as the target firm is integrated with the buyer’s business. However, profits are important as the key value indicator and if profits are declining, this may cast doubt on the way the firm is managed and whether the acquisition will be value-enhancing for the buyer in the short term.

Buyers are always looking to exploit potential synergy and scope for further growth, and they will ideally look for both revenue and profit growth as indications of market demand and good management respectively.

Ultimately, consultancy buyers are only interested in growing consultancies; one year of negative growth can set the clock back on the optimal time to sell the business.

Click here to find out which of your revenue streams are the most valuable to a buyer.

  1. What percentage of revenue should be allocated to marketing? Is there a cap?

It isn’t necessary to have a cap on marketing; however, every firm must learn to manage the amount of demand it wishes to create in line with its ability to deliver on the projects it wins.

For instance, if your firm is going through a period of high utilization and is working close to capacity, then you might want to hold back or slow down your marketing spend for future campaigns. The key is to do this without risking a dry pipeline once your capacity becomes free. Creating demand for services which you are then unable to deliver can be damaging for the business, so it’s important to balance your sales and marketing spend.

  1. Earn-outs are common when buyers acquire services firms. Can they be avoided?

It is true that earn-outs are very popular with services consultancy buyers. This is because these types of buyers usually aren’t buying transactional assets; they are buying people and their capabilities. The risk is that if all of the money is paid up front, owners and stakeholders can leave or become less motivated to continue to deliver. To alleviate this risk, buyers offer earn-outs.

Sometimes, to make the proposal more competitive, buyers would offer a differently balanced earn-out without increasing the value of the overall offer.

But, while earn-outs seem to be the norm, they are by no means absolute. It is not unusual for non-consulting buyers to acquire a consultancy outright.

The second half of the blog will be published in the coming weeks.

To sign up to listen to a recording of this webinar, please click here. To view other webinars in the series, please click here.

If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

Nurturing client relationships to support equity value growth

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the questions asked during the webinar on what you need to know to nurture your clients in order to grow mutually beneficial long-term relationships.

  1. How do you build long-lasting client relationships with a small team?

Every company starts with a small team. Which is why, as a business owner, it is very important that you remain disciplined about where you invest your time. Business owners cannot afford to spend all their time delivering services, but should focus some of their efforts on managing client relationships. Otherwise, the organization will never grow.

A good tip is to book time in your diary to speak with your client sponsor and other important stakeholders once a week. To make these meetings worthwhile, update them on project progress and give them insight into some of the wider hot topics impacting their sector. You could also invite the important stakeholders to your project review meetings once a month so that they can see first-hand the benefit you are delivering. At this point, do not hesitate to ask your clients for referrals.

Click here to find out if your client relationships are building or stunting your firm’s growth.

  1. When should we invest in a customer relationship management (CRM) system?

Because a CRM system is an automation tool, it is important that the underlying process of data capture is sufficient to keep the CRM data up-to-date and relevant. Similarly, if the CRM system offers more functionality than you need, the whole application can become too cumbersome to manage.

For smaller consultancies, it is perfectly acceptable to manage your client data on spreadsheets. But as the organization grows, a simple spreadsheet will no longer be able to cope with the growing number of clients, client relationships, business offerings and activities.

It would be unusual for a business with yearly revenue of more than $3 million to manage without a CRM system. Given that the service and software is available by seat, it can be very affordable.

  1. How do you manage relationships with your clients that only need your services every three years or so?

It is common for a consultancy, such a strategy house, to work with a client intensively for a number of months and then move on. However, three years is a long time not to keep in touch with a client or sponsor. Things in organizations can change very quickly, and it is important that you find a way to keep going back, so they keep your organization front of mind.

At the simplest level, you should schedule a time to speak with your sponsor every few months or so; again, go back and share your thoughts on hot topics in the market.

You might want to consider setting up a networking organization or community of clients. This will give you a reason to keep in touch with them and other important stakeholders in the sector you operate in.

  1. Would you ever really decide to walk away from a client?

It can be painful walking away from a client. However, if a client is too expensive to service, because of geographic barriers for instance, it may well improve your consultancy’s profits by choosing to no longer work with them.  Another reason for exiting an opportunity is if a client’s sector is not core to your business offering or if there isn’t any real potential for business growth.

The best way to run a consultancy is where demand for your services is slightly higher than your actual capacity. If you are in that situation, it is easier to walk away from clients that are not beneficial in the long run.

Finally, as with all of our webinars in this series, our key takeout is presented in our Start, Stop and Continue strategies. To immediately improve client relationships:

Start:           Classify your accounts and appoint managers for the key ones

Stop:            Stop spending all your time in the key accounts on delivery only: make time for account management. Stop spending any senior management time on the exit accounts

Continue:     Updating your sales pipeline with forecasts from your client accounts

To sign up to listen to a recording of this webinar, please click here. To view other webinars in the series, please click here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access.

Growing equity value webinar series: Market proposition

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the questions asked during the webinar on what you need to know to attract the right clients and buyers.

1. How would a specialized consultancy firm, such as a law firm, go about quantifying its unique value proposition (UVP)?

The UVP has to answer the question ‘why should I buy from you?’ so start thinking about ways you’re differentiated from your competitors along industry, geography and services lines. In terms of industry, perhaps you focus on one or two industries and are recognised experts in say, construction law, or oil & gas exploration. In terms of your geography perhaps you’re able to offer international clients representation in their major jurisdictions. And in the case of your services think about what might set you apart, perhaps you use technology to automate low value-add services so that your clients pay Lawyers for the work only they can do, or perhaps your firm offers a flexible fee structure, or ‘subscription pricing’ for a steady stream of work, or even fixed fees when you know you can leverage your own IP and juniors while still maintaining quality.

As to quantification, think about the way a prospect can relate to the benefits and therefore what kind of quantification is meaningful. What’s the pain point that gives rise to the need for your service, and how will that situation be improved by using your services? List out all the benefits, quantitative and qualitative then get some feedback from your current clients about the relative priorities. And on that point, the process for developing a UVP should start by looking at what you’ve successfully sold in the past, then inviting your clients to give you the unvarnished truth about why they chose you and the benefits they received. And if that conversation isn’t as comfortable as you’d like, well, all the more reason to do the exercise!

You can read more about the power of a UVP for consulting firms here.

2. When looking to attract new clients, is it better to emphasize the benefit of the services provided or demonstrate the firm’s technical competence?

While doing both is important in the sales process, it is important to prioritize the emphasis on the benefit of the services when speaking to prospects because you will have plenty of time to demonstrate your technical competence at a later stage in the process. When approaching potential clients, they are very interested in finding out the benefits of using your products and services as opposed to your competitors.

So, you must first outline the benefits of your services to clients, and then reassure them that you have the technical competence to deliver these outcomes.

3. Should we have a UVP for each service offering or just one for the whole company?

We advise you to do both. You need to have an overarching UVP for the company and then one for each service you offer. This is because there is a process of attracting, nurturing and converting prospects, which move from the broader lens of the firm, and zooms in on the individual services your firm provides.

For more information on why it is important to focus on clients with the specific needs your UVP addresses, read our blog on the importance of focus for consultancy success.

Finally, as with all of our webinars in this series, our key takeout is presented in our Start, Stop and Continue strategies. To immediately improve your market proposition in your consultancy:

Start: Explain in three jargon-free sentences what you do, and the benefits you deliver

Stop: Putting your technical expertise at the start of your sales messages

Continue: Creating content that showcases the benefits of your services (e.g. videos, articles, case studies)

To sign up to listen to a recording of this webinar, please click here. To view other webinars in the series, please click here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.