I recently had a lengthy discussion with Mr. Frank Picarello, CEO of Cadence Management Advisors on this topic, as he will be providing an educational session on “Valuing your Business” at the next CompTIA Small Business Owners meeting. He has held positions at IBM, MicroAge, Nortel Networks and, most recently, at All Covered, a large US provider of IT services to small businesses. At All Covered, Frank held the position of COO and VP of Strategic Business development where he was responsible for acquisitions. During our discussions Frank provided some compelling information that every small technology business owner should use to grow their businesses in the coming year. His research discovered the following:
• There are 1.6M small businesses in the United States, defined as a company with 10-100 employees. These companies employ more than 16M people.
• 82% of small businesses provide IT support internally.
Extracting from this information, there are more than 1.3 million service business opportunities to pursue in the U.S. The research found that the majority of these self service small businesses would prefer to have an external service provider, but did not know how to find the right organization to support their business. This services opportunity in the SMB market is not a niche or one in which strong competitors have long standing relationships. Examine your approach to providing services in the SMB marketplace, and act upon this information to acquire customers who have been seeking your business expertise. Frank said it best when he stated “small technology business owners should observe how many SMBs they pass on their way to work and they should ask themselves how many of these businesses may need their IT services.”
Now that we have identified a huge market opportunity to help you target your business growth, what are the other factors to consider when expanding business opportunities? According to Frank, growth should not be the only business objective. You should consider increasing the value of your business as you grow market share. Companies looking to acquire technology businesses look at several areas when determining the value of a technology business. This includes valuation factors such as base financial numbers (margin, net income, growth, customer base, etc.), value add elements (type of revenue, business model, re-occurring revenue, contract terms, etc.) and goodwill (core expertise, intangibles, intellectual property). When growing or expanding your services into the SMB market opportunity, you should also develop a business plan to increase the long term value of your organization. In my next article, I will examine in more detail how these valuation factors can be incorporated into your operational plans.