Unleashing the Untapped: Cracking the Code to Hidden Value in Private Business
By Tom Zucker, President
Every day, businesses are sold with untapped, unrealized value. Artful buyers proceed to unlock this hidden value and proclaim their genius to their shareholders and partners. However, in the corridors of private businesses, a silent revolution is underway: one that transcends conventional norms and dares to unearth the treasures beneath the surface prior to the sale of the business. Beyond the balance sheets and boardroom meetings lies a deep well of potential just waiting to be unleashed.
Owners are often unaware of how to identify the hidden value within their private businesses. There are several reasons for this. A primary factor is a lack of awareness of and education on strategic value creation. Many entrepreneurs focus on day-to-day operations; too often, this leaves little time to explore strategies that could significantly enhance the value of their enterprises. Additionally, skilled business owners are experts at defining clear tasks for highly paid advisors/consultants, such as efficiently producing tax returns and legal documents. Such consultants focus on well-defined problems, while employees are confined to their roles and responsibilities. Normal business operations are managed and maintained, but no time or energy is devoted to realizing the business’ full value in an informed, strategically sound way.
Overcoming these barriers—namely, a dearth of strategic expertise, exacerbated by limited time—requires a proactive approach to learning, a willingness to embrace change, and a commitment to seeking the right guidance to uncover the business’s hidden potential. Without the guidance of professionals or mentors, business owners may struggle to identify and capitalize on opportunities. Yet there are many caverns of hidden value within your company that cry out for exploration.
The following are a few areas to consider:
Leveraging Intellectual Property: Unlocking hidden value in intellectual property (IP), such as trademarks, copyrights and patents, requires a strategic and innovative approach. The following are a few ideas to both realize and protect value:
- Create New Revenue Streams: Monetize IP through licensing and partnerships by collaborating with non-traditional industries or brands that can leverage your IP in new ways. Negotiate licensing agreements that not only generate revenue but also enhance the visibility and reach of your IP.
- Brand Extension: Strategically evaluate your IP portfolio to identify underutilized assets. This may involve selling or licensing out non-core IP to generate immediate value. Use trademarks and copyrights to create unique brand extensions.
- Protect by Partnering: Instead of relying on traditional patent licensing, form patent pools with competitors to jointly exploit and protect essential technologies.
Monetize Underused Assets: Unused or underused equipment, inventory, and other assets may hold significant value. The ability to simplify operations and clean up the appearance of the shop floor are obvious advantages. Additionally, monetizing unused equipment pre-sale is financially advantageous to a seller. Often, buyers will acquire a business and, within the first 90 days, conduct a sale to clean up operations and generate early financial wins.
Creating Strategic Alliances: Strategic alliances and partnerships can be the catalyst for fruitful synergies that were previously overlooked. The following are a few ideas for value creation:
- Access to New Markets or Geographies: Leverage the larger company’s global presence to enter new markets or expand geographically. Utilize their established networks, distribution channels, and local market knowledge to navigate regulatory challenges and cultural nuances.
- Innovation and R&D Collaboration: Join forces for R&D initiatives. Benefit from the larger company’s R&D capabilities, innovative technologies, and ambitious pipelines. Collaborate on new product development or improve existing offerings.
Discovering Valuable Data: The third and final frontier is the present-day goldmine: data. Private enterprises sit atop a mountain of information, and harnessing the power of data assets can redefine the trajectory of a business. Machine learning algorithms, predictive analytics, and a deep dive into customer behaviors are all tools to unearth hidden gems within these data troves.
A revolution is underway to improve the financial performance of privately held businesses. Many companies are leveraging new and innovative ways to add incremental value to their businesses. For businesses struggling to realize their full potential, creative and experienced professional support can be an invaluable resource.
© Copyrighted by Tom Zucker, President of EdgePoint Capital Advisors, merger & acquisition advisors. Tom can be reached at 216-342-5858 or on the web at www.edgepoint.com.