We live in unprecedented times. New technologies disrupt existing business models on a daily basis and the public has all but lost their trust in big business, politicians and the media. For the first time in history a majority new generation is growing up with no gods or no God but worship the religion of data, social media and technology. Every day we read how artificial intelligence, machine learning, blockchain, crypto and robotics are rapidly transforming life as we knew it and rendering many businesses obsolete.
However, if you embrace this revolution taking place right now and leverage its benefits you may be immensely rewarded.
How does a business owner navigate through this revolution and attract the premium?
The place to start is to understand the strategic rationale of the buyer. Understand her motivation for wanting to do the acquisition. In most cases the buyer will either be a growing corporate or smart high net worth entrepreneur that participates in this new world. Their priority will be to meet the expectations of shareholders. These expectations can be extremely demanding and will include a superior return on investment, great social impact, environmentally friendly, and high ethics. Acquisitive champions desire to be profitable good citizens of society, embracing technology and restoring the trust of people.
The next step is to evaluate how you can transform your business into a data rich customer centric focus. How can you apply technology and artificial intelligence to predict and measure every important move and desire of each customer? Is there a more efficient way to generate new customers or to service existing customers?
An important element for buyers is trust as they cannot afford any kind of scandal or embarrassment in the media or society. Trust is hard won but easily lost. The latest annual Trust Barometer report produced by global communications firm Edelman shows trust in Australian business has fallen another 3% over 2017 to just 45%, lower than the global average of 52%. What they will due diligence is whether your business processes, products, services and numbers can be trusted. The following can assist to be a trustworthy business:
- Assemble a board with a minimum of two independent directors qualified in corporate governance processes
- Arm yourself with expert advice on big data, artificial intelligence, blockchain and other industry specific technologies
- Implement rigid documented quality control processes for every material step in the production process or service delivery
- Personally get involved to ask customers why they are leaving or complaining and fix those defects
- Understand your financial reporting and ensure your key numbers are always delivered accurately and timeously
- Always plan cash flow far ahead so you get no surprises. Remember the wise words of Churchill: “Plans are of little importance, but planning is essential”
The final preparation is to enhance your business profile in the local community and ensure minimal damage to the environment. Be seen out there to sponsor community events and get involved in your favourite charities. Reduce your business carbon footprint and measure it through a carbon neutral agency.
Business valuations these days are still determined by the old fashioned discounted cash flow model but a solid premium is available for good businesses that can demonstrate they are great by also being trustworthy, having social impact, and caring for the environment.
Written by Tony Wiese, principal at Wiese & Stone M&A advisory
