In our last post,we showed how the brand is the most valuable asset of any business. Today, we want to take a few short paragraphs to drive that point home. Especially attentive should be private equity investors. Why? Because they are on a constant quest to drive up the market value of the companies in their portfolios. And attention to brand value is one quick and relatively inexpensive way to get significant results. Founders, owners and others may want heed this advice too but it’s PE investors to whom we speak directly. And to them we offer, as a guiding principal, “It’s the brand, stupid.”
Sorry if that sounds harsh. It’s not meant to be. Of course PE execs aren’t stupid. But when so many of them are expected to drive up the market value of a company, it’s perplexing that so few ever think of the company’s brand. They refinance, they streamline manufacturing, they simplify supply chains, they modernize methodologies, they upgrade technology, they replace personnel, and much, much more. All these things improve market value. But the fastest and, probably, least expensive way to improve market value is to improve the relationship between the company and its market. That is, improve the brand. Because that relationship is the brand.
Along with all the other things that PE people do so well, they would be wise to take a look at what the company means to its market. Whatever widget the company is selling, there is a market that’s buying it. Why do they buy it? Because that widget fulfills a need in the customers’ collective lives. It’s long been proven that all purchasing decisions, even in B2B, are emotional. We only use our rational brain to justify the emotional decisions we’ve already made. So what is that need the buyers have? Is it emotional or practical or ideological? Are they seeking status or admiration or affection? A little bit of focused research will reveal the answer.
Once it’s known what the market needs this company to be for it, it will be clear how to make the company more meaningful to its market. It will be possible to build up demand for the brand, make it addictive even. You know, like cocaine or Apple. With this basic yet priceless knowledge in hand, the PE firm will know how to package the company’s offerings in a way that will get maximum positive response from the market. It will be able to create messaging and visuals that trigger the right emotions and whet customers’ appetites. They’ll be eager to hear the story the company wants to tell. That’s the opening to engage audiences and drives sales.
With all this in place, it’s remarkable how much brand value will increase. That means overall increase in the market value of the company. As we pointed out in the last blog post, brand value accounts for 68 percent of the total value of the average company on the S&P 500. That ratio is even more exaggerated for many tech companies. What’s the latest market value of Uber? How much of that is attributable to tangible assets? The rest is brand value.
But, as a guiding principle, “It’s the brand, stupid.” does not just apply when driving up the sale price. It is equally as important on the buy-side. When PE firms devise acquisition strategies they seldom factor in the enormous power of the brand. A tuck-in or a roll-up may make perfect financial sense. It might be a no-brainer in terms of the management team(s) on hand. There could be a dozen reasons why the acquisition is irresistibly attractive. But the wrong tuck-in could be a disastrous branding move. Then that sweet financial picture will rapidly begin to sour as sales start to dwindle, cultures clash, and high-performers bail. A quick brand audit – before purchase – will flag any potential branding contradictions. That will give buyer the opportunity to rectify the situation or walk away, entirely, from is going to be a bad deal.
The single biggest driver of value is not finance or manufacturing or technology. It’s brand. Don’t leave it out of your considerations.
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