The Importance of Culture on The Value of a Business
We have commented a number of times in past posts about the impact of culture and vision on the value of a business. In case you want to go back over these:
I recently had two clients that provide clear and rock-solid examples of why getting both of these things right.
An IT business had delivered solid revenue and earnings growth on the back of a role out of culture improving initiatives that locked in employee feedback, issue resolution and employee satisfaction measurement. There where clear improvements in metrics that showed productivity increases that helped support profitable growth in revenue.
Without the cultural initiatives they would have struggled meeting customer demand and the outcomes would have been different.
Because of these features we had confidence in the ongoing level of profits and hence it contributed to an increase in value of the business.
In another recent example the cultural improvement related to a change in the work environment to a new and efficient production plant and much more spacious offices. The change in the workplace morale was almost instantaneous, and it was clear that people were focused on what was possible in the future rather than what was wrong with the present.
Without a new workplace this company would not have achieved its growth plans and its value would have diminished.
One of the key features of culture and productivity is to understand the vision, know what the goals and expectations are, and have confidence that employee issues are being recognised and improvements will be made. Employees are more willing to show initiative, go the extra mile and focus on performance rather than just "clock in, do the hours, clock out".
These features reduce the risk profile of the business by increasing confidence that targets will be met and plans delivered, and delivering increased profits.
These features are also a key ingredient to reducing key person risk - but that is a BLOG post for the future.
I see culture, vision and productivity features showing up in business valuations where improvements in both revenue and productivity have driven higher EBITDA results and therefore higher valuations. These features also tend to support higher EBITDA multiples.
If you want to increase the value of your business, get the culture right and have a clear vision or target for your business that your employees know and understand.