Up Your Valuation: Two Key Business Areas for Software Organizations to Fix Now
All businesses should be building value, period. If your software company’s medium-to-long term plans include merging or being acquired, or if your business has recently been purchased by a private equity firm or other alternative investor and you now have outside management to answer to, there are essential aspects of your business that you should focus on now. And if selling your business is not in the immediate future, these priorities still hold true. Putting the time in now will position you well in the future so that when you are ready to sell, you can do so on your terms while getting the most from the business you worked so hard to build.
Areas for Immediate Focus: Configurability & Quality
Building value in one’s company seems like an obvious goal. Why then is it something many only think about when it’s time to sell or even after the fact once you’ve been absorbed by a private equity firm? It is essential that sellers make their businesses as appealing and attractive as possible. The following strategies will help keep your business on track and maximize value.
Configurability: Say Goodbye to Customization
As software companies mature, most realize that scalability is essential if they want to be positioned for long-term success. You must establish a repeatable sales process so that you can sell the same thing (or roughly the same thing) to many customers. It’s typical for young organizations to sell various one-off solutions to please prospects and customers, but being all things to all people will not serve you well over time. Very few businesses need or want only a few clients, so for the rest of us, we must move away from individual customization early with the product’s first version. If not, you’ll have a support nightmare in the making that will get progressively worse as new versions of your product are released.
Once you’ve established your business, work on developing a process where you sell one version of your product that can be configured (not customized) for your client base. Selling many versions of your product is not sustainable and significantly stunts scalability. It is imperative that customer needs and feedback are not just considered, but implemented. The way to do this without taking a hit to your valuation is to take elements of customization and convert them to product configurations instead. In other words, you need to create parts of your product that you can turn on and off depending on each customer’s requirements.
Quality: Eliminate Technical Debt, Automate Testing & Deployment
In the early days of most companies, R&D often develop workarounds to get aspects of a product out the door. On top of that, one-off solutions are created as businesses try to woo customers and build a client base. What often results is significant technical debt, which should be shored up as soon as possible. The longer you wait, the harder it is to eliminate it quickly when the time comes to sell.
Over the years, in our work conducting technical audits for PE firms and independent companies, the most significant driver of quality is the automation of testing and deployment processes. Without automation, you have no way to predict product timelines, resource needs, and overall budgets. It’s no secret that successful companies release early and often. To do this, it is important to automate these key processes early in the evolution of a company.
Leadership should remain focused on building value. Often though, business valuation shifts to the top of the priority list only when it’s time to sell, or after being acquired by a private equity firm. If you focus on and remain dedicated to building value early on, you will be set up for success and positioned well if and when you decide to sell. Once issues around con-figurability and quality are remedied your business will be set up well for future acquisition conversations.