Turbocharge your business: A formula for value creation

Author: Jim Canfield

Entrepreneurs are builders and shapers of ideas, companies, jobs. And to keep building — to keep the entrepreneurial dream alive — they need to create value.

Value creation means forging a healthy, scalable business, one that can grow sustainably and ultimately attract a favourable buyer if that’s the goal. The best way to reach this sought-after stage is to use the Value Creation Formula.

This formula is a blueprint for building a turbocharged growth engine. And great news: each of its dimensions can apply to the unique needs of companies across industries.

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The Value Creation Formula is about viewing your business through an investor’s eyes. Even if you’re not seeking investment, taking a buyer’s perspective is worthwhile because they have a keen sense for a company’s future profitability.

At Class VI, we’ve learned a thing or two from sealing M&A deals totaling over $4 billion. Chief among the lessons is that investors tend to consider four key components as indicators of a company’s health, resilience, and worth:

• A credible growth story. It’s not enough to believe in yourself and your company; you need to present unimpeachable data showing how much the business has grown and indicating good odds of future success.
• A capable team. A competent executive team with strong leadership and communication skills can take charge of areas like finance, operations, and technology, freeing up the CEO to focus on strategy and vision.
• Operational excellence. You need the daily grind of your business to run efficiently. Depending on your industry, this could mean well-oiled production facilities, automated workflows, or established cybersecurity measures. Most businesses should have data-driven decision-making and documented KPIs for each role.
• Strong financials. Businesses need revenue, and they must understand where the revenue comes from. Scaling a company requires the kind of increased cash flow and transparency that only effective financial management can bring.

There are many risks in each of these areas that can slow progress and reduce profitability, which is why risk reduction is such an important part of building a healthy business. Common risks include overreliance on the owner for decision-making and relationship management, tying a large percentage of revenue to a small number of customers, and weak financial controls.

Some of our data points to the positive impact of advanced preparation that uses the Value Creation Formula. Across the 77 transactions we completed between 2012 and 2024, 87% of companies that had first pursued intentional, strategic preparation centred on the four Formula elements secured a higher purchase price than predicted estimates from a third-party valuation tool.

The Value Creation Formula’s power lies in its wide applicability — we’ve seen positive results with everything from SaaS firms to pet food suppliers to manufacturers. It’s just a matter of applying fixes to the circumstances of a particular business.

Below are a few ways that firms in various industries might take this approach to increasing growth.

In manufacturing and CPG, every efficiency gain can mean more units produced at less cost. Technology often provides solutions to efficiency problems that can’t be solved any other way.

A capable chief technology officer can support broader business goals by fostering innovative R&D and implementing policies for quick and cost-effective acquisition of tech. The downstream effects of filling this C-suite chair might include upscaled operations and increased profitability.

To know whether you’re operating at peak efficiency, you need to measure the right indicators against a set of established benchmarks.

For example, SaaS leaders should ensure their companies track annual and monthly recurring revenue, churn rates, and the ratio between customer lifetime value and acquisition cost. These metrics can help chart operational effectiveness and financial health over time, which are key threads of a business’s growth story.

Data gathering and analysis are areas where technology can vastly improve both inputs and outputs — and investors love to see clean, credible data.

All companies can benefit from improved financial controls that reduce waste and decrease the chance of fraud. Important measures include monthly bank reconciliations, regular reviews of customer and vendor lists, and randomised audits of inventory and equipment at asset-heavy businesses.

Robust financial controls ensure that you get (and keep) what you pay for, and they reassure potential investors that you run a tight ship and quickly plug any leaks.

I encourage you to look at your own business through the Value Creation Formula lens. Are there gaps in the leadership team you could fill to ease some burden at the top? Are there any steps in the production or development processes that feel like they take too long? Have you thought about telling your company’s story in terms designed to appeal to an investor?

You’ve built a revenue-generating business from the ground up. Now consider how you might turbocharge its growth and value!

This story was originally published on the Vistage Research Center.

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