Businesses, especially small ones, are traditionally valued by what can be tallied by accountants and auditors. Sales, inventory, payroll, accounts receivable, debts, etc. This is a fine way to value a business to settle on a purchase price, but this doesn’t account for what I see as the most important factor in valuing a small business: its brand.
Small businesses rarely (if ever) seek to understand the value of their brand; what their brand’s market position, mindshare, and goodwill are worth. But the value of a brand can make or break a business over time.
How exactly can your brand’s value make or break your business?
Imagine that your company hasn’t been delivering on your brand’s promise but you don’t notice because you don’t regularly measure your brand. The customers you currently have, your loyal followers, will probably continue to use your company’s services for quite some time. Conversely, new customers, those who are newly exposed to your brand and don’t yet have a preference for any one company, are less likely to use your brand again if they have an underwhelming or negative experience.
You won’t see an immediate decline in business because you still have all of your original customers. But your business isn’t growing. You aren’t anywhere close to the 15-20% annual growth goal you set with your managers. Your new customer list hasn’t been growing, and your sales aren’t generating the amount of foot traffic they once did.
This is what happens to weak brands with declining value, and this demonstrates how not focusing on your brand can have a negative impact on your business’s measurable bottom line.
Now imagine that you regularly take stock of the value of your brand. You and your staff make a special effort to greet new customers with a “first time buyers program” that makes them feel special, like a member of your team. You are not only seeing business growth, but referrals of new customers from your existing ones are steadily increasing. Your sales are growing, your staff love their jobs, your customers love your company, and yet you are still looking for ways to improve the business.
This is what happens to brands that are increasing in value, and the impact on your bottom line will be positive.
Creating a valuable brand is not about having a lower cost of goods, lower labor costs, higher yields, etc. Creating a valuable brand is about making a promise that customers are excited about and delivering on that promise every single time. Both of these techniques put more dollars in your pocket, but one is tied to your long-term success (your brand) while the other is tied to short-term gains.
Focusing only on the earnings-based valuations of your company will result in a weak brand and short-lived success. But focusing on this as well as developing long-term brand value will have your business growing for years to come.
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