What is the one thing used to defined success for investors, Board members and executive leadership teams?
ANSWER: INCREASED ENTERPRISE VALUE.
If you can increase enterprise value, almost everyone associated with the organization will be happy. It’s like the expression in sports that winning cures alls ills — increased enterprise value cures (most) ills.
So, what’s the secret to increasing enterprise value? No secret at all, really.
Sometimes we make things far too complicated in business.
The simplest explanation of how to increase enterprise value is that value comes from (organic) growth and growth comes from revenue.
Increased Enterprise Value comes from increased revenue growth
Where does Revenue Growth come from?
The next logical question then is, Where does revenue growth come from? The question is so fundamentally straightforward it almost seems stupid…
But… you would be amazed at the responses you get — from even the most senior sales and marketing people — try it! Ask someone: Where does revenue growth come from?
They might say…
“Sales”…
“Leads” …
“Sales qualified leads” …
“Signed contracts”…
“Paid invoices”….
Organic Revenue Growth comes from 5 places
The truth is to (A) Produce Revenue and (B) Achieve Growth, there always has been and always will be five (5) places and five places ONLY of origin. Here they are:
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Create More Opportunities
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Execute More Effectively Against Those Opportunities to Convert them to Bookings
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Ensure Customers Achieve Success (a.k.a. they achieve business outcomes for which they purchased your product or service)
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Stay Longer, Buy More
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(Customers) Advocate for the Brand and Solution
Revenue growth only comes from 5 places
Shall we break it down to even more essential elements? How about the sources of opportunities? What are they?
The 5 Sources of Opportunities
They are: Sales. Marketing. Partners. Referrals. Customer Success.
Beginning with Marketing, a world-class marketing effort provides 30% of qualified opportunities into the pipe.
The sales organization has to generate its own sales opportunities to the tune of 40%.
The 5 Opportunities Sources
Depending on the business structure and distribution, Partners can provide 0% to 50% but let’s use 10%, as that’s an industry standard.
Referrals are 5% and then Customer Success is 15%. The distinction with Customer Success is that it comes from post-sales implementation and support. These opportunities close much faster than do marketing qualified leads.
Why Does Organic Revenue Growth Remain So Difficult to Achieve?
So if you can break down (1) Enterprise Value; (2) Define Where Growth Comes From; (3) Define Where Opportunities Come From, why does organic revenue growth remain so difficult?
The short answer is “Gaps.”
There are lots of areas for potential breakdowns or gaps within strategy, market, product/market fit, sales strategy, planning and execution and customer success.
Right now you may be thinking about specific issues, such as “the quality of our leads is bad” or “adoption for our platform is not what it needs to be.”
Maybe you have been treating Customer Success in a traditional sense, that is “Customer Success” was delivered via Professional Services (Onboard, Train, Deploy, Enable) and Customer Support (Tickets, Response and Resolution) but it has not become a source of new sales for you in terms of expanding, renewing, cross-selling or upselling your products, services or platform.
The truth is, your revenue generating efforts can break down or not be optimized in dozens — maybe hundreds — of areas.
Wherever there are breakdowns or inefficiencies you are not optimized. The good news is, you can already identify the breakdowns yourself, such as: “Our product/market fit is off.” “There’s a disconnect between what marketing says is a qualified lead and what sales says is a qualified lead” and on and on.
The difficulty, of course, is identifying the specific areas to attack, including defined KPIs (Key Performance Indicators) appropriate for the function, your company and your industry. However, if you can begin by embracing sales as an interconnected system, you are on your way to having a repeatable, comprehensive revenue generating machine.
Here are three maxims to hold:
- Revenue production and growth are optimized by aligning Strategy, Messaging, Product, Marketing, Sales, and Customer Success Strategies and Execution.
- Companies struggle to manage all go-to-market activities that produce revenue including markets, products, content, messaging, accounts, leads, opportunities, pipeline, conversions, bookings, revenue, customer success, expansion, and advocacy.
- A systemic, repeatable, measurable end to end approach can be implemented that will accelerate growth and enterprise value creation.
Connecting Revenue Growth and Enterprise Value
Let’s connect the dots to our original question: How do you make your Board, investors and organization happy? The answer is increase Enterprise Value through (organic) Revenue Growth.
How much increased value does incremental increases in revenue create? Well, there are many variables depending on industries. For example, a SaaS-based company with a recurring revenue model may enjoy large multiples of 10x or more. The same might be true for companies in hot spaces like mobility, IoT, health care, etc.
But, as a rule of thumb, you can anticipate that an incremental revenue increase of $2.5M can create anywhere from $7.5M to $17.5M (or $25M at 10x multiple) in enterprise value. Obviously, for smaller companies, that $2.5M is much more impactful to overall valuation.
Incremental Revenue to Enterprise Value Table
The point is, if you can increase organic revenue growth at significant levels, you can increase your enterprise value to the delight of your Board, investors and entire organization.