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The Value Spectrum

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The Value Spectrum

By , November 22, 2008

All businesses sit somewhere on this spectrum and maximising the value of your business  depends upon your ability to recognise where it currently sits and how to improve its position.  The next few blog posts will focus on this model and how to use it to MAXIMISE THE VALUE OF YOUR BUSINESS !

Lets look at the model first – a simple spectrum identifying the different types of businesses – from boutique to scale – neither end better than the other – just a different model for running a business and importantly different value drivers at each end of the spectrum.
If we look at some common examples it becomes much clearer:

Scale– this is McDonalds – a true scale business – value is based on volume. This is a highly efficient factory for churning out fast, convenient take away meals (initially hamburgers but now a wider range of meal options ) – forget the ethical and health arguments for a while and just look at the business. The typical McDonalds franchise in Australia sells for about $1M – $1M FOR A HAMBURGER SHOP ! Why ? – they make money and are easy to run.

This is Michael Gerber’s e-myth on steroids – highly systemised and efficient factories where volume is key – we will look at some of the specifics of the McDonalds business in the next post and you’ll see some amazing factors that contribute to its unique value and explain why they sell for $1M.

Boutique – these are speciality businesses servicing a niche market or clientele – like Mrs Topps in Neutral Bay – a premium end offering where geeting a booking this year is very hard to come by  or Rockpool – a boutique seafood restaurant in the Rocks built around a celebrity chef in Neil Perry – high end premium price , premium service. Rockpool only does seafood but very very well – it is expensive and exclusive – a true boutique business.
In the middle sits – NO MANS LAND – not a great place to be – simply put this is when you try to serve a hamburger in Rockpool or try to cook Lobster Mornay in a kitchen at McDonalds – many get caught trying to produce and serve a product that the factory is not designed for.

 

Due to the cashflow pressures of start up or ignorance of real value drivers in business – many business get caught in this trap and end up talking on clients / products / markets that are not in their target group and therefore they move their business away from either end of the model and towards no mans land – where value reduces.

 

In the next few posts we will go in much more detail on boutique and scale businesses and how to drive value in each area – as well as what to do if you get stuck in no mans land. This is the area where we get most client response at seminars – it is a valuable platform for understanding how to build real value in your business.

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.