Why competitive advantage and a unique value proposition will increase your company valuation

The value of your business comes from your ability to reliably predict profits into the future and to prove to a buyer that those profits will be sustained, or grow over time. So if you can show a competitive advantage over rivals, and offer a unique value proposition to clients, your perceived value to a buyer will be much higher.

The key role of competitive advantage in a business valuation

The value of your business is the present worth of its future income to a buyer. That is, your company valuation will – typically – come from your ability to reliably predict profits into the future and to prove to a buyer that those profits will be sustained, or better still, continue to grow over time.

If you can sufficiently convince a buyer that your business will continue to grow after their purchase, then you will achieve a high multiple and the high business valuation you want.

That’s why demonstrating a clear competitive advantage is vital if you want to achieve a high sales price.

Competitive advantage refers to the unique set of attributes, skills, or resources that enables your business to outperform and distinguish itself from its competitors.

Your aim as a business owner, if you want to achieve the highest possible business valuation, must be to determine your competitive advantage and prove to a buyer that your competitive advantage will last into the future and that the business could not be easily copied by others.

It’s also true that the greater the competition in your industry, the higher the risk to a potential buyer. If you can mitigate that risk by demonstrating an edge over your competition, your valuation will be higher.

Examples of Competitive Advantage

Competitive advantage can come in many forms. It can be gained through superior products or services, strong brand recognition, customer relationships, operational efficiency, an expert workforce, or innovative technology.

For example, if you’ve developed unique technology or intellectual property (IP), and even better, if it’s protected by a patent or trademark, then it will be very difficult to copy your business and you will receive a higher valuation.

Likewise, if your business model relies on the quality of your people – such as a software house or a professional services firm – and you have assembled a crack team of expert employees who want to work with you, then a competitor will struggle to compete with you and the buyer will make you a higher offer.

But here’s a word of warning – your competitive advantage should never come simply from lower prices. This will inevitably create a race to the bottom which no company should want to win. And one thing’s for sure, an investor or buyer will never want to enter that race with you.

How to build your competitive advantage

To build your competitive advantage, and the value of your business, you should focus on:

 What you do consistently better than your competitors
 How you are different to competitors who look like they do the same thing
 Identifying the parts of your business that could easily be copied and protecting against this
 Getting patents, trademarks or contracts in place to protect your technology, IP, products, and services
 Ensuring your products and services are not just seen as commodities

Build a Unique Value Proposition

Linked to competitive advantage, your unique value proposition refers to the distinct and compelling benefit that your products, services, or brand offers to your target customers. It can differentiate your business from your competitors and make it clear why potential customers should choose your products or services over others in the market.

Similar to competitive advantage, if you can prove that your business offer customers a unique value proposition that cannot be easily copied or gained at a rival business, then your business valuation will be higher because the buyer will see that your existing profits will be sustained, or better still, continue to grow after they’ve purchased the business.

Why a Unique Value Proposition is vital

If your value proposition is truly compelling, not only will you have an advantage over your competitors, but you will be often able to charge higher prices for your products and services.

You may also get a reputation in the industry, and sometimes you will get buyers seeking you out – which clearly puts you in a strong position to achieve a higher valuation!

As an Owner/Director you must ensure that there’s a reason for your customers to buy from you rather than your competitors and that this is clearly communicated to your customers so that they can always recognise the value of your products and services over others.

You also need to make it clear to a buyer why your customers couldn’t get this value anywhere else!

How to determine your Unique Value Proposition

To determine your unique value proposition, you must have a deep understanding of your customers. You need to be clear on why they buy from you, what perceived value they get from you. This will also involve a commitment to monitoring, maintaining, and constantly improving your customer service.

You need to be clear on the problem you solve for your customers and show that you truly understand the value they get from you.

In our experience, we often find that the value your clients actually get from you can be different to what you thought it was!

We would also urge every member of your leadership team to regularly get out of the boardroom to speak to your customers.

A buyer is likely to ask how your customers’ needs have changed over time, and you need to show that you have a plan to meet their changing needs into the future.

If you can demonstrate that you offer a clear and unique value proposition to clients, you will make your business significantly more desirable to a potential buyer and significantly increase its value.

Thinking about selling your business? Contact our Corporate Finance team

If you’d like to find out how we help our clients to increase their business valuations, please contact us today.

And if you’re thinking about selling your business or securing an exit in the near future, Leonherman can help you. 

Contact our Corporate Finance experts today, in strictest confidence, to find out about our Corporate Finance services and to speak to one of our expert advisers. We have helped many business owners to sell their businesses with the valuation they sought.

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