Market Snapshot

What You'reUp Against

Regardless of industry position, companies fail because they are unable to keep up with rising market demands. In the United States alone, there are nearly 32 million small businesses with roughly 60 million employees are coming for your customers, plus…

$16 trillion
The 500 largest companies represent two-thirds of the US GDP, accounting for $1.8 trillion in profits, and they’re looking for more.

500,000+
Companies are born every minute of every day to solve problems you’re not. These startups want to take market share and disrupt industries.

50+ million
Freelancers make up roughly 35% of the US workforce, contributing an estimated $1 trillion in personal earnings, and they want more too.

+100% Failure Rate
Regardless of how dominant, companies fail because they don’t improve quality, value, and impact over time. The question isn’t if your business will fail, but when; and how much value can you add before it does.

Overview

Following theBest Investors

Today’s large enterprise is a prime example of the results of building better assets. It is how they got to the top of a market, industry, or sector. Here are some core traits to look for in these kind of businesses.

  • Consistent Growth in Sales
  • Consistent Growth in Earnings
  • Consistent Growth in Book Value
  • Low Debt to Income Ratio (> 5)
  • High Return on Equity Average (+12%)
  • Low Operating Costs to Income (> 75%)
  • Low CapEx to Income (> 75%)
  • High Gross Profit Margins (+ 25%)

These are the characteristics top investors demand and how companies create them is where the rubber meets the road.

One

Consistent Growth

For most people building a business is a complex, burdensome endeavor involving thousands of possible tactics. The truth is that growth comes from acquiring more customers, selling them more of what you offer, and getting them to shop with you more often. That’s it.

If you can focus on those concepts, rethink and reorganize business activities into these categories you can see the dramatic boost in revenue and profits. Here’s a three step process.

Increase number of clients
turn more new prospects into paying customers

Increase average spending
get each client to buy more at transaction points

Increase buying frequency
get customers to buy more often

Let’s say a company does $1,000,000 in annual sales with 200 clients paying on average $5,000 per transaction. If it can grow 20% across these categories, it then gets 240 clients paying $6,000 per transaction just 20% of which come back as a repeat customer during the year, the company generates an additional $728,000.

The concept of generating alpha means to achieve these goals with the same or close to the same amount of budgetary spending.

Two

Sound Financials

As a company builds brand value, it must remain financially sound. There is a risk of growing yourself right out of business. It won’t be able to operate with negative cash flow forever, despite what might be seen from unicorn startups. Generally, a company needs competitive advantages to tick most of the traits from above. Check the following metrics against your industry or local market to see whether or not you have one.

  • Sell a product or a service that is a basic necessity
  • Be the first capture a lot of market share
  • Operate in a large industry with little competition
  • Sell a unique product that doesn’t change much
  • Provide a unique service that’s difficult to replicate
  • Be the low cost producer and/or seller of basic necessities

Business is about capital. Leaders compete on the field of capital allocation. Being able to grow without expending a lot on equipment or debt or basic operating costs means you have a competitive advantage. Even if that doesn’t translate into a higher valuation over the short term. Too many businesses, even boring ones, have a structure that eats up all their excess cash inflow and when that happens, it’s hard to build a better asset.

Three

Methodology

Test
Adjust
Optimize

Create new ideas, projects, campaigns, and initiatives, test multiple different activities per product or service, adjust to the feedback and KPIs, and optimize for scale and outperformance. Once you notice that something is working, it’s easy to get complacent and just throw more money at it. That’s where the metrics above come in handy. Don’t settle for a current definition of success, benchmark it against what the leaders are doing. If your company is the leader, there may be something smaller competitors are doing to grow faster that you can emulate.

Quality
Value
Impact

The formula to building better assets is centered around the concept of constant improvement. For business leaders that means improving the quality of investments, value of offerings, and impact in the markets their company’s operate.

TL;DR

Summary

Building better assets = better business development, which means focusing on quality, value, and impact across the main aspects of your company, which really means mastering the fundamentals, allocating capital at scale, and adjusting to market changes.

To do that, you can model others up to a point and then you have to test, adjust, and optimize your own new creative innovative ideas… and those have to also be across the main aspects of your company.

Differentiation = survival. There are three basic ways to grow a business: more customers, more sales per customer, and higher spending per customer.

To compete and win there are KPI’s that your business has to be benchmarked against, even if you’re the perceived leader in a market, industry, sector.

Study the data to reverse engineer how other companies did it (eg Fortune 500) and then model and TAO to improve QVI.