Perhaps AT&T's recent announcement that it would buy T-Mobile for $39 billion got you thinking: how much is my business worth and what would it take to double its value this year?
That is the kind of question we have been helping our clients answer for years. And we have found the best way to learn is to ask. When you are learning to cook a new dish, you consult a recipe. When you assemble IKEA furniture, you follow the directions (at least most of us do). So why not also consult someone about how to build huge value in your business?
Over the years, my colleagues and I have interviewed many CEOs and entrepreneurs to understand how they do it. But last week, we think we hit the gold mine.
Phil Fernandez is an entrepreneur who has already taken two companies public. Now he is applying his process again, as the CEO of Marketo—a Revenue Performance Management company, which over just a few years grew to 1,000 customers in 30 countries with a 315% year-over-year revenue growth rate. My colleague Nadia Laurinci and I got a chance to learn first-hand how Phil does it, and you can view my blogcast on building company value here.
Here is Phil's recipe:
1) Set out to change the world: identify a business opportunity where you can make a dramatic impact. Tesla Motors (the first U.S. automobile company to establish IPO since Ford) is pursuing a grand mission: "to increase the number and variety of electric cars available to mainstream consumers."
2) Design a product that passes three tests: make sure the product you want to build around this opportunity has these three characteristics: it is A. valuable for the customer, B. well-defined, and C. unique relative to the competition. Every breakthrough product or service we could think of—Skype, the iPad, the Flip video recorder—passed these tests.
3) Kill the plum tree: the Chinese have a saying that you must sometimes let the plum tree whither to make room for the peach. Similarly, you will need to say "no" to business opportunities that might lure you away from your focus.
4) Build with velocity: build a large and sticky customer base quickly. A company's value is often built on a story of velocity. When investors like technology guru Randy Komisar said of a new IPO, "You can't hide the fact that this thing is slowing down. There was a year of hyper-growth, and then it rolled over," that company had to drop its offer price to $85 from $100. Luckily the company, Google, accelerated again and made the loss.
5) Manage customer acquisition cost: figure out how you can you acquire new customers at half the cost of your competitors. One of our favorite "outthinkers," Vistaprint (VPRT), spends next to nothing on traditional marketing. Instead it gives away free business cards which carry little marginal costs. (Note, I hold VPRT stock.)
One can draw several parallels from Phil's recipe to T-Mobile's early days: 1) the company was laser-focused on growing its customer base, 2) it executed its strategies quickly, 3) and it was obsessive about product innovation, launching multiple new product offerings every year. This formula seems to work quite well, so ask yourself the following five questions to see how you can ramp up your company's value today.
- How is your company/product/service going to change the world?
- What makes you unique relative to your competitors?
- How will you know when to say "no"?
- How will you create a story of velocity?
- How can you lower your customer acquisition cost?