When we talk about business value, we mean a business’s worth, both in financial and intrinsic / stakeholder terms. So, as well as its economic value we consider its value in other areas, for example to its customers, its employees, and of course, to its potential buyers.
A challenge for many B2B media, information and events entrepreneurs is knowing how to ‘unlock’ value, to find new sources of value in their business to help them scale. Unlocking value is hard because, more often than not, working in your business rather than on your business can blind you as to where the opportunity lies. Only by taking a step back can you identify how to drive value in your business.
Why focus on value?
The first task in figuring out how to drive value is to focus on it. Media entrepreneurs must accept and embrace the idea that value growth is a good thing, and the most fundamental way of measuring the success of your business. This is important whether or not your ultimate goal is to sell your company. A sellable business is a valuable business - one with sustainable revenue and profit growth over the long term.
Value creation is the second highest-order thing you’ll do as a business owner, after creating your vision and mission. Together, your vision, mission and value creation plan set the course for your business. See Figure 1.
Figure 1. Your vision informs your mission, which underpins your value creation plan
Intrinsic and extrinsic value
Understanding what to focus on in creating a value creation plan requires media entrepreneurs to understand different categories of value, both intrinsic and extrinsic.
Intrinsic value
In other words, your core value, the value your business provides to primary stakeholders. To determine if you have an intrinsically valuable business ask questions such as:
- Are your products indispensable to your customers?
- Are you providing your team with meaningful employment and opportunities for growth?
- Is your business improving the industry that you’re serving?
Extrinsic value
The perceived value of your business beyond its immediate customers, employees and market, in particular the financial or shareholder value that your business provides. This is often described as enterprise value, i.e. what your company is worth in purely economic terms.
Thinking about enterprise value in particular is essential for value creation. It can act as a useful sense check for business owners in determining what matters most when it comes to value creation.
It’s important to realise that extrinsic value comes only as a function of having intrinsic value.
The value drivers that matter
You can grow a business with shaky financial reporting, but you can’t grow value without knowing your EBITDA, where your business is heading, and, crucially, how to add value. This makes a value creation plan an essential document for the ambitious media entrepreneur.
Creating a value creation plan can feel daunting. But it is really just a process of focusing on the different drivers of value and planning what action you will take in line with each one. (And for each value driver, thinking about the intrinsic and extrinsic value you are looking to create.)
To make value creation planning easier, Collingwood has identified five value drivers that matter most to independent media businesses. Crucially, they are informed by what buyers of such businesses consider important in identifying companies to buy, and how much to pay for them.
The five Collingwood Value Drivers
1. Market Leadership and Potential
Buyers and investors expect market leadership, or at least the potential to achieve it. It is a function of dominant market share, demonstrable thought leadership, high-level audience access, and dominant share of voice. These factors create barriers to entry and accelerate growth, and continually improving in these areas is key to value creation. If you are not at least number two in your given niche, your business is likely to be perceived as less resilient in a downturn and therefore less valuable. When budgets get cut in tough times, your products should not be on the cut list. If you are yet to achieve market leadership, prioritise this in your planning.
In addition, buyers favour companies that serve high-potential markets: those that are global, growing, disrupted, and / or highly regulated. While you may not easily be able to change your industry sector, looking to serve areas that are growing or changing within it should be a key part of your value creation plan.
2. High Quality of Earnings
Quality of Earnings (QoE) is a function of strong revenue retention rates, average order values, product scale, and share of wallet. The maturity of the client success function also has a key role to play. High QoE reduces volatility, improves return on investment, and is a must for buyers and investors.
What ‘good’ looks like in these areas (e.g. retention rate; average order value) is largely dependent on the business model (i.e. business information, media or events - or a mix). But there are clear growth and EBITDA margins a business should aim for, with both meaningful targets and strategies for how to achieve them being vital to a value creation plan.
3. Great Products
A company’s approach to product management is a strong predictor of its ability to grow sustainably. Robust IP, a well-defined, documented value proposition, and high-quality pricing and packaging, data and content strategies all indicate a great approach to product.
At its most fundamental level, a great product will solve an important problem or create a significant opportunity for the customer base. Establishing what this is for your products and how you will shore up your value proposition and protect it from competition is often a key element of value creation planning.
4. Professional Governance, People and Process
Decision-making, governance, reporting, management and culture are the foundations of scalability and predictability for buyers and investors. Scaleups go through multiple upgrades of their culture and governance as they scale, in particular to reduce their founder dependency and increase their ability to attract and retain talent.
When you start a business everybody will do everything and likely informally, documenting only what needs to be documented. However, as your revenue increases you should introduce more systematic ways of planning and communicating so your team is clear on the direction of travel and accountabilities; this should include a meeting cadence, procedures and operating manual, as well as building resilience and de-personalising decisions. You should move from the founding team making decisions to company-led decision-making ratified by the board, and driven by data, insights and strategy.
The evolution of financial reporting is likewise important. While in the early days of your business, you might be laser-focused on revenue, building professional governance around finance and operations as the organisation scales is a must.
The steps you will take to embed professional governance, people and process in your business is an important - but often overlooked - element of value creation planning.
5. Fast, Predictable Growth
Consistent commercial growth is a proxy for value. Stability is prized by buyers and investors for many reasons, including the fact that volatility reduces investment returns. How commercial teams are structured, run and report on their activity, and the tools they use, are all key factors here, and should be addressed in your value creation plan.
What ‘good’ looks like in this area can - and should - change over the lifetime of the business, but predictability generates financial value, allowing entrepreneurs to make sensible investment and resourcing decisions based on robust expectations for the future. Predictability is also important because it creates a better culture; if you can effectively plan ahead, you can keep your promises to customers and staff.
Finally, if and when you sell your business, be aware that the sale price you achieve will reflect the predicted future growth of the business, i.e. higher multiples reflect a higher likelihood that the business will outperform in future. Consistent past growth is a vital tool in getting the maximum valuation.
The value leap
While there are just five key value drivers for independent media businesses, the commentary above shows that there are a number of elements associated with each one, a range of both hard (financial performance) and soft criteria for business value. It would be unnecessary - and ill-advised - for any company to try to improve in every area at once. The key then is to identify in which areas you most need to drive value, now.
Indeed, prioritisation (and having someone available to act as a sounding board to help you with it) is key, as there will typically be multiple areas for improvement. If you can identify the areas that will have the biggest impact on your business with the appropriate amount of effort, it is possible to make a dramatic improvement to your business value in a short period of time. What we call a ‘value leap’.
The Collingwood Value Creation Benchmark
Over 20 years, Collingwood has developed its proprietary approach to making that value leap and, through its team of experts, helps B2B media and events entrepreneurs to do just that.
A key tool in determining where to focus in our work with media entrepreneurs is the Collingwood Value Creation Benchmark. Via the Benchmark, we work with our clients to appraise their business in around 30 areas that directly impact a company’s value, identify the areas in which they most need to focus to make the value leap, and generate a preliminary enterprise valuation to help them to understand what their business is worth now and what it could be worth in the future.
The Benchmark is based on Collingwood’s proprietary diagnostic and discovery process, which is informed by our annual Media Acquisition Report into what matters to buyers of media businesses, as well as ongoing buyer research, and our decades of media M&A experience.
Exit: where to focus
Whatever your business model, if you are looking to sell your business, the top areas in which you are likely to need to focus are likely to be any or all of the following:
- Revenue retention
- Forward bookings
- Pricing and packaging
- Sales team optimisation.
Time again, we see that investment of time, energy (and usually external expertise) in these areas pays off significantly when a business is valued for sale.
If you are wondering whether you need to focus on these areas, consider the following:
- Are you able to track whether you’re keeping customers and building account value?
- What level of forward bookings do you have in place on day one of your calendar year?
- It’s vital to think about what you’re going to do in 2025 before you deliver in 2024 to truly improve your quality of earnings
- Have you maximised your pricing and packaging with a gold standard approach, and are you able to price according to the value your product actually delivers to customers?
- Can you effectively size and segment your target markets so that your sales team can optimise their time focused on the right customers and opportunities?
Remember the customer
Another important aspect of value creation planning is to increase your customer focus. Media entrepreneurs often start out very close to their customer, but this intimacy tends to fall away as they grow and spend more time looking internally than externally. We find that companies who start to take value creation seriously, often begin by going back to their customer.
Very often, media entrepreneurs don’t truly understand the value they provide to their customers (and to be clear, we’re talking about both advertisers / sponsors and readers / delegates) because they don’t spend enough time understanding what impact their product or event has on the customer’s business, what decisions they influence, and the extent to which it is perceived as essential.
If you take value creation seriously, then taking customer insight seriously is a must. You might not be able to employ a dedicated product or insights manager, but give someone accountability for bringing customer insight into your business, and free them up to spend on this vital work. (Or, find a third-party that can do this for you. Collingwood has a dedicated Insights team for this very purpose.)
Remember though, it’s important to distinguish between the value the customer gets from your product and exit value, though they are intrinsically linked. The more you understand your customers and the value they get from your product, the chances are you’ll have a better exit value. But one doesn’t always perfectly equate with the other.
Value creation planning is an art and a science
Wherever you focus in your value creation plan, how you create it, communicate it to and use it with your business is essential in delivering the value it aims to achieve.
Be sure to bring your management team into planning, and later, the whole company into execution, and infuse it into all strategic and tactical decisions so everything is aligned throughout the business.
A vital part of this process is to get input from external sources, from M&A advisers with sector expertise and buyers, to board members and industry advisers, as well as drawing on external KPIs and benchmarking reference points. Because value is both intrinsic and extrinsic, it’s vital to ensure that you are focusing your efforts on areas that make sense outside of your business as well as inside it.
Be aware that there’s an art and a science to planning the future shape of your business. Data is vital but it will only tell you so much. Feedback from stakeholders is essential but you have to be careful who you listen to. If you only follow what customers want then you’re unlikely to achieve an optimal exit. If you’re too slavish about what you think a buyer is going to want you can become deaf to customers’ needs.
Finally, take heed of the fact that a key risk for a media entrepreneur looking to sell their business is that it is bought by a company with a different understanding of its value (or not being bought at all). This is often due to a misalignment of where a business’s value lies. There’s no one way to avoid this but a great start is to seek the advice of people whose opinions you can trust to set you on the right path to realising your company’s true value.
No matter your business goals, if you’re a B2B media, information or events entrepreneur, Collingwood’s team of expert advisers can help you to scale your business, increase its value, and exit successfully.
Recommended reading
Governance Is Your Friend: With scaleup comes complexity: more people, more projects, more change. This is when governance becomes necessary. In this must-read report for information, media and events entrepreneurs, we share the five simple steps to embed governance in your business.
Exit Hacks: Many entrepreneurs think about selling their company as a separate activity from running and building their business, and don’t start preparing for sale until they are in their exit year. Here, Collingwood distils seven key steps to elevate your company's worth.
The Scaleup Toolkit: Collingwood's Scaleup Toolkit is designed for B2B information, media and events entrepreneurs looking to scale their businesses by breaking free of the day-to-day and building real value in their companies.
Media Acquisition Report, 2024-26: The Media Acquisition Report uncovers the macro M&A trends among trade buyers and private equity (PE) firms in the Media sector. The outputs give potential sellers a set of guidelines and benchmarks, and a sense check on acquisition criteria and valuation ranges. Produced in partnership with Plural Strategy Group.
