How Small Businesses Can Create Value to Drive Investments
Updated: Sep 24, 2019
Half of all small businesses survive at least five years and most fail due to cash flow problems. Small to mid-sized businesses (SMBs) face several challenges including competition, unfit teams, no funds, or lack of market necessity according to Fundera.
Troubled business owners need to redirect attention and effort to increasing business value in order to attract investors who will be able to alleviate the financial burden and offer valuable advice. With the perfect business investor, small businesses develop lasting strategies to continually increase revenue and grow business over time.
Any investor wants to know how your business will perform after they buy it. If you own one of the 28.8 million small businesses in the U.S., here’s how you can increase business value to attract potential investors:
Successful investors analyze your business’s competitive advantage instead of revenue which is contrary to popular belief. How a company protects and grows its revenue is critical to investors.
Brett Pittsenbargar, small business investor, states that making your business difficult to replicate is far more compelling and crucial than revenue because it ultimately means the life or death of a business. He also recommends to look beyond cost when assessing your business’s competitive advantage because a competitor can easily set up shop next door, offer a discount rate, and pull customers away from your hard earned work.
Ask yourself what qualities give your business significant leverage over the competition and focus on niche strategies.
Recurring Revenue Streams
Creating lasting revenue that are stable and can be trusted in the future are also key to investors. Small businesses can create recurring revenue through membership sites, product or affiliate subscriptions, software as a service, service plans or retainers, and online courses.
Investors want to feel assured that your business is worth the investment and will continue to grow. Pittsenbargar says that nothing gives investors more confidence in a thriving business than when recurring revenue streams from subscriptions or service contracts are implemented.
According to a study by SumAll, customers who shop once have a 27% chance of making a second purchase, while someone who has purchased a fourth time has a 59% chance of coming back.
With social media and email, creating customer loyalty and staying top-of-mind is simple to do. Actively foster loyalty by rewarding customers. Provide offers such as “45% off on your second purchase” help bring valued customers back in. Create a dedicated loyalty rewards program that incrementally rewards every purchase. Also, ask customers for their feedback to create open communication lines.