June 2020 — By Shatara Troy
Until just recently, we were enjoying the longest bull market in history, and a correspondingly friendly seller environment. Now, with the emergence of COVID-19 and the subsequent economic impact, the M&A market has suddenly slowed. For many companies, this shift presents a challenge for plans to sell, recapitalize or raise capital in the near-term.
However, as we acknowledge this temporary delay in the M&A market, it is equally important to note the silver lining it presents. You now have the time and introspection necessary to pivot, fortify and position your business for accelerated future growth.
In our practice, we conduct Path to Liquidity assessments that help entrepreneurs understand the value of their business today and how best to optimize that value in the future. Based on our own experience and the current economic environment, here are our top five recommendations on how to regroup and thrive during these times.
1. Optimize Your Business Model
As a business owner, take this time to re-evaluate the overall structure of your revenue model and how you deliver your services. Now is the time to understand and double down on the key drivers of your profitability, while also assessing areas that can be streamlined or trimmed back.
Where are the low hanging areas of growth that you previously did not have the time or opportunity to focus on? Perhaps this is an opportunity to re-evaluate your pricing model, refine your target market, focus on product bundling or mull over the finer details of contract terms.
A potential investor will be looking to see if your business model is sustainable, if you have optimized profitability and if there is potential for further growth. By taking this time to refine your business model, you can ensure that once it is time to go to market, a potential buyer or investor will like what he or she sees.
2. Embrace Digital Transformation
COVID has thrust us forward into a digital transformation we cannot afford to ignore. As we transition into this new territory, it is increasingly important to evaluate the areas of your business that struggle the most to operate remotely or online. Now is the time to shore up operational bottlenecks and key client-facing areas.
In this moment, clients, employees, vendors and other stakeholders are particularly receptive to new technologies and retooling of old processes. Leverage this time to drive effective change management that can propel your business to new levels of efficiency.
3. Strengthen Your Team and Leadership
Now more than ever decisive leadership is needed. Businesses should focus on developing a leadership team with a strong culture of accountability and the ability to execute effectively. Realigning strategic focus across your team will ensure a successful foundation going forward.
Take a keen look at the gaps in senior management from the perspective of both function (e.g. sales, marketing and operations) and skills (e.g. negotiation, talent development and strategic planning). If gaps or imbalances exist, now is an excellent time to round them out.
Ultimately, investors back more than businesses, they also back people and teams. This environment provides an opportunity to develop and showcase a leadership group that can create deep value for potential investors.
4. Establish Metrics and KPIs
One of the keys to decisive, impactful leadership is understanding the drivers of your business. Metrics and KPIs are the vital signs of your business and it is important to regularly review such data to assess business performance.
While we typically see many entrepreneurs lead based on an intuitive understanding of what drives the business, there are often more compelling, easier to deploy strategies that go undiscovered. Take this time to figure out the metrics that matter, establish a framework to consistently track those metrics and leverage the insight to make key decisions and adjustments.
The right KPIs and metrics can be a powerful source of insight and can provide clarity into questions like:
For investors, KPIs and metrics also provide a level of confidence in the growth story of a company. When you can confidently point to and expound on the metrics that drive cash flow, investors will be more confident in your business.
5. Demonstrate Your Track Record
Even if you commit to the previous four steps, a potential investor may still want to see the impact of those actions in your P&L and sales momentum before the true value created from those initiatives can be realized. This is exactly why now is the ideal time to make the changes necessary to strengthen your business. Implementing these initiatives now means your actions can manifest in your track record before we shift back to a normalized M&A market. Companies that can demonstrate such a successful and strategic pivot (especially in difficult times) will be rewarded for their adaptability and initiative.
The Next Step
While it may not be an ideal time for many businesses to go to market, it is an opportune moment to optimize your business model, embrace digital transformation, strengthen your team and leadership and establish metrics and KPIs. Doing so will help demonstrate your track record and ensure that you are in a strong position once you decide to go to market.
Taking a holistic approach, Harbor View Advisors operates at the intersection of consulting and investment banking. We ensure your path to liquidity aligns with your business model, the overall market landscape and shareholder objectives. Learn more about our Strategic Consulting and how we can optimize your path to liquidity, or email us at vision@hvadvisors.com.
