Growing the value of the company requires growing the number of customers. Depending upon your situation, you may focus on customers who are profitable in the short term or longer term. There are four steps you can take, starting with growing customers and leading to growing shareholder value or value to the owners.
Step #1 Start by focusing on the customers.
Recognize that you are competing for customers. Agree on your company’s customer metrics e.g.
- Target customer market share?
- Customer recommendations?
- Customer satisfaction?
- Customer retention?
- Customer perception of your company’s differentiated value proposition?
Also consider what internal capabilities need to be competitively differentiated in order to impact customer growth. For example, having the best financial processes (rather than “good enough”) may not impact customer growth for every company.
It is critical to listen to customers. If you don’t listen to customers and understand customers, then you won’t have customers who understand your company. The 2017 Edelman Trust Survey for Canada showed that only 36% of people believed that companies listen to customers. What an incredible opportunity for your company to differentiate itself and grow,
Step #2 Don’t forget to look at what is happening to the overall size of the market.
It can be hard to grow the number of customers if the overall market is shrinking. Blackberry may have 100% market share of customers who desire a physical keyboard, but that that does not help grow the total number of customers.
Step #3 Determine what the appropriate financial metrics are for your company.
Private Equity may be focused on free cash flow. Other companies may be looking at asset value.
Step #4 Define how value is realized by the owners (often referred to as Shareholder Value)
Depending upon the company, owners may realize value via:
- Dividends and share buybacks;
- Sales of the shares;
- Compensation; or
- Products and services provided to the owners.
Have a common understanding of over what time frame value must be achieved. E.g.
- 3 years for a high-tech start-up;
- years for private equity buying an existing company;
- 30+ years for a pension fund; or
- Indefinite for a family holding company.
There can be risks in focusing on growing shareholder value.
- The board and CEO may take actions which grow shareholder value in the short term but do not grow the number of profitable customers.
- The perception of analysts and investors impacts shareholder value.
- There can be actions which improve the financial metrics in the short term.
- It can be easy to overlook customers and customer metrics.
To enable discussion with your board and management, download the following one-page PDF: