Value Creation Strategies For Small Business Owners
So you’re not a multinational corporation with a board composed of top Fortune 100 executives. You still have access to effective ideas like these four value creation strategies. Here is The Business Strategy Advisor's interpretation for small business owners of an
article in
Management Innovation eXchange. It's based on
Value: The Four Cornerstones of Corporate Finance by McKinsey authors Richard Dobbs, Tim Koller, and Bill Huyett.
Four Value Creation Strategies
1. Growth isn’t always the key to value creation, despite the business world’s obsession with it.
Translation: Balance growth with return on invested capital (ROIC). The authors point out that “high growth is more difficult to sustain than high ROIC.” This is due in part to the fact that your company must compete with other companies for its share of whatever limited growth is available in the marketplace, and because the means of growth-new products, new markets, and new customer segments-are difficult to find.
2. Earnings are inevitably variable, so trying to smooth them is a fool’s game.
Translation: Accept the inherent volatility of earnings and focus on long-term value creation rather than short-term earnings expectations.
3. Divesting high-performing businesses can create more value than retaining them.
Translation: This sounds counter-intuitive, and not many small businesses have businesses to divest, let alone high-performing ones. So the practical side of this strategy for the small business owner is to consider what activities, however high performing they may be at present, cannot contribute maximum value from the existing resources of the company. The management test is “can we put our capital to better use?”
4. The voices of certain investors should be heeded, and the rest ignored.
Translation: The small business owner is not without advice. But he or she is best served by heeding the voices of those “who thoroughly understand the company’s strategies, strengths and weaknesses, and can better distinguish the shorter from the longer term” rather than the voices that have a short-term orientation and clamor for short-term tactics.
WHAT VALUE CREATION STRATEGIES WORK FOR YOUR SMALL BUSINESS? Please share your experience in the comment box, below.
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