Steve Tafaro, Author at BluWave

REDIRECTED How to identify key value drivers for your business

December 7, 2020 Steve Tafaro

In working closely with founders and CEOs during various points of their “company growth journey,” what I’ve learned is—no matter your size or industry—creating value should be the foremost priority. Why? Because the ability to do so is a company’s greatest asset. Ultimately, the question leaders need to answer is “What is actually driving value?” Beyond that, understanding which metrics can potentially increase corporate value, then building upon them, in turn may lead to a higher valuation if and when that company wants to sell.

Over the years, I’ve developed a solid collection of key value drivers that can differentiate a company from its competitors, and make the company more appealing to potential buyers:

#1—Continuous revenue growth: The ability to increase revenue with existing customers by efficiently managing current contracts and securing long-term contracts, contract renewals, and upgrades, drives significant value. The more predictable the recurring revenue is, the more value it will generate.

#2—Sales growth: The continued ability to grow sales with new accounts (i.e. “bookings”) is a strong leading indicator of revenue, and one of the most important metrics for value accretion.

#3—Profit margins: Gross and operating profit margins that consistently exceed industry averages will command higher values.

#4—Management team: Good management teams are hard to assemble and even harder to keep together. The depth, quality, experience, past success, and tenure of the management team are positive value indicators.

#5—Reliable financial controls and business systems: Reliable financial controls and systems used to generate revenue, control expenses, track customers and manage the delivery of products and services, are safeguards for a company’s assets and positive contributors to business continuity.

#6—Branding: Marketing is measured by customers’ response to a company’s products and/or services. Strong branding will improve company sales through increased market share and mindshare.

#7—Little concentration risk: A diversified customer base is essential for the ongoing viability of a business. Companies that focus on their largest customers run the risk of concentrating a great a percentage of revenues with too few customers. If one customer is more than 10% of revenue or if 5-10% of customers account for 25% there is concentration risk and thus a negative indicator

#8—Proprietary products or services: A product or service that is unique to a customer segment, or one that is clearly differentiated, will always drive more value.

#9—Product mix and diversification of gross profit: Multiple products or services and the diversity of contribution to gross profit lowers inherent risk.

#10—Multiple industries: Services sold to multiple industries (with industry diversification) will justify a higher value because each industry represents a specific growth potential.

#11—Market niche: Having a definable leadership position and a clear competitive advantage in an industry niche is favorable for companies looking for a potential exit.

All of these aforementioned attributes are important for companies that want to understand the what in terms of potential value drivers. Stay tuned for next month’s insights into the how for driving value.

As always, BluWave is here to assist company leaders, CEOs, and PE funds across a variety of functional and resource areas that drive growth. Please get in touch if there is anything we can do to help you!

REDIRECTED The Evolution of Sales and Marketing into a Growth Engine

November 10, 2020 Steve Tafaro

For small and early-stage companies, sales growth is essential: it is a leading indicator of future performance and represents the most important measure of value accretion. However, the marketing and sales practices employed by many organizations today result in a failure to meet growth objectives. And while CEOs continue to rank sales growth as a top priority, many are dissatisfied with the results. So why are the traditional practices no longer working?

Early-stage, small and mid-sized companies are trying to grow in a dynamic and hyper-competitive sales environment. The evolution in communication and access to information has dramatically altered how buying decisions are made. Websites are packed with information about a company’s products and services, while LinkedIn and other social networks allow consumers to tap into personal connections for references. While the Internet is often viewed as a selling medium, it has evolved into a buying medium – according to McKinsey, almost 70 percent of purchasing decisions are made at the “initial consideration” stage, which means many buyers aren’t even reaching the point where they interact with a salesperson.

When prospective buyers do engage, they expect salespeople to understand their unique concerns and offer viable options that address them. The ability to build interpersonal relationships with prospective buyers and help them make informed and confident buying decisions is essential, but it’s also where traditional sales methods fall short.

The role of marketing will continue to grow as new technologies emerge and buying behaviors evolve. This is why it’s more important than ever for your marketing strategies and sales processes to be tightly integrated and aligned with how your customers buy. With this in mind, here are some suggestions that you can implement to increase sales results:

#1—Focus marketing on creating demand

Marketing should be less focused on presenting products and services and more focused on creating demand and solving problems. A company’s marketing messaging should arouse curiosity by showing prospects how others have benefited from its solutions and how those solutions can meet their unique needs. It’s not about the products or services themselves, it’s about the results and capabilities they offer.

For example, consider the difference between two marketing campaigns for a cloud-based productivity tool. The first emphasizes the product’s intuitive user interface, features and design elements, and so on. The second explains how the tool will increase communication and collaboration, which will reduce inefficiency and improve a company’s bottom line. Marketers should always emphasize the latter set of points: demonstrating how products and services can actually help customers instead of just how they function.

#2—Create a power index

One of the most effective ways for companies to highlight the outcomes their products and services are capable of securing is the creation of a power index, which lists these outcomes in a logical order. After each outcome, prospective buyers are asked to assess whether they’re “underpowered” or “adequately powered” in that area by checking a box. This leads buyers through a process that provides them with a clear understanding of the results they can achieve with a particular product or service and helps them prioritize the results that are most meaningful to them. As buyers complete the power index, several interesting things happen:

They see the full array of results they can achieve, not just the ones they assumed. This demonstrates the value of the solution they’re considering.
If a manager has been asked to evaluate competitive solutions and hasn’t developed explicit criteria, the power index will become the basis for their assessments.
The sales team is able to see the “underpowered” areas to focus on.

When marketing and sales teams deploy power indexes, they create two-way communication with potential buyers by showcasing the value of their products and services while simultaneously learning about buyers’ unique characteristics and needs.

#3—Develop and implement a value-based sales process

The most successful companies use value-based sales processes. These companies realize that a sale can only occur if a prospective buyer is either looking for a solution to a stated need or willing to discuss the fact that a problem exists. A value-based sales process relies on a system of steps to identify these problems and demonstrate how a product or service can help. Using the results of the power index, the salesperson’s objective is to help prospective buyers close the gap that exists between where their organization is today and where they need to be.

The value-based sales process is designed to help buyers: 1) diagnose the issues or gaps and identify causes for them, 2) explore how a product or service can resolve their issues, and 3) mutually define the value received by resolving the issue and closing the gap.

When companies implement a marketing and sales strategy built around creating demand, identifying customers’ needs, and explaining how their products and services can achieve concrete positive outcomes, they will turn this strategy into a powerful engine of growth.

REDIRECTED Part Two: How To Avoid Hiring the Wrong Person When You are Growing Fast

September 22, 2020 Steve Tafaro

Last week, I wrote about the fact that when you’re poised for growth and moving fast, putting the right people in place is just as important as developing a business strategy. However, you’d be surprised how many leaders underestimate the importance of finding the right fit. In addition the first common mistake I see— treating talent acquisition as tactical and reactive versus strategic and proactive—the second common mistake I witness time and time again is overlooking the cultural fit.

In a commoditized world, a company’s culture stands out as the most powerful and sustainable opportunity to create a competitive organization. As we look to recruit the “best athletes” we often hire based on experience and overlook cultural fit. The culture in which people operate has a direct bearing on their performance; and the performance and retention of the people they manage. In fact, the number one reason a person leaves a company is because of their manager or boss.

One of the best ways to avoid these obstacles is to develop a standardized interview process. According to a 2015 talent acquisition study by Glassdoor, organizations that lack a standardized interview process are five times more likely to make a bad hire. Managers must be given the tools to formulate good questions and evaluate candidates. Behavioral interviews can determine if the candidate would fit well into the company culture. It also provides insight into a candidate’s past experiences, skills and abilities that relate to the position for which they’re interviewing. Here are some examples of behavioral-based interview questions and what you’ll learn from the candidates’ answers:

What attributes do you look for in a company when applying for a position?
You will be able to see if a candidate’s values and aspirations align with those of the business.

What are your pet peeves?
You will discover what irritates, agitates and infuriates a candidate; if those things exist in your environment move on to the next candidate.

Have you ever found an error in your own work? How did it happen, and what did you do about it?
You will determine whether a candidate can admit and learn from their mistakes, or if they prefer to shift blame and render themselves blameless.

What types of decisions are easiest for you to make and which ones do you find most difficult?
Probing in this area will enable you to assess whether the candidate is inclined to fully buy-in to their job responsibilities and make decisions that are in the best interest of the company.

How do you accommodate last-minute changes?
Some people become very stressed in an environment of constant change. You will want to assess this when interviewing for management positions.

Give an example of a time when you faced an ethical dilemma at work. How did you deal with it?
This exposes a candidate’s personal belief system and what they hold dear. Their answer will tell you if they’re a good fit for your company culture.

Tell me about a time you set challenging goals. What did you do to achieve them?
You’ll learn how a candidate approaches setting goals for themselves, and if achieving a successful outcome matters to them.

Tell me about a time you disagreed with a decision. What did you do?
By evaluating the candidate’s response, you should be able to tell if the candidate views differing opinions as constructive, as conflict or as an insult. Their reaction can also give insight into passive-aggressive or openly aggressive tendencies, which are undesirable in any environment.

For more information about resources pertaining to talent planning and talent acquisition processes, please contact BluWave. We have experts who can help you win!

REDIRECTED Part One: How To Avoid Hiring the Wrong Person When You are Growing Fast

September 15, 2020 Steve Tafaro

When you’re poised for growth and moving fast, putting the right people in place is just as important as developing a business strategy. But hiring the wrong person or third-party resource can be more detrimental than leaving the seat open. HR agencies estimate the cost of a bad hire can range from 40% of salary for entry level people to 400% of salary for executives. More importantly these costs can extend beyond monetary value due to the impact on productivity, employee morale, company culture and reputation.

As someone who has advised many companies during high-growth phases, I’ve learned a thing or two about what it takes to get the right people in place. When coaching a CEO, one of the first questions I ask is: “What’s your talent acquisition process?”

If the answer to the question is “we don’t have one” or “posting openings on LinkedIn”, then I have a fairly good idea of where to take the conversation. One common mistake I see, as newly funded companies strive to hire the best talent, is treating talent acquisition as tactical and reactive versus strategic and proactive.

Companies often rush to fill a position and end up hiring someone who does not meet the needs of the job. This sense of urgency usually happens when an attractive candidate is identified but not properly vetted. The sudden need generally arises due to the departure of a key employee; or when a number of people have to be hired to meet the staffing needs in a given area. A well–conceived talent acquisition process will eliminate these issues.

Such a process should include:

Assessing your needs: Why does the need exist and what is the ideal candidate profile?
Presenting your brand: What is the message and value–proposition communicated to candidates, and does it reflect your culture?
Generating leads: Postings on job boards, recruiting, professional networking and employee referrals.
Screening candidates: A thorough screening process will produce more consistent high–quality outcomes and eliminate bias.
Interviewing candidates: Everyone involved in the interview process should be trained in behavioral-based interviewing.
Onboarding new hires: A strong onboarding process will improve new-hire retention.

Stay tuned for part two, where I’ll talk about the best interview questions to ask in order to get the right people in place.