How To Tech Enable Your Small Business To Multiply Your Business Valuation

Can I Really Multiply My Business Valuation? What's The Catch?

Smart folk with big ideas can f*ck up an operation that’s running well, through hubris and over-enthusiasm -- SecretCFO

This guide presents you with a 4-step framework that will make your business more efficient, more scalable, more profitable and more valuable.

It emphasises improvements to the core business and explains why and how you should place guardrails around those "big ideas". This gives those big ideas enough space to become game changers while ensuring they cannot "f*ck up an operation that’s running well".

This framework is so effective at driving business valuation growth because it addresses several moving parts that all compliment one another:

• By creating product innovations and value adds, more revenue can be earned
• By making your business more scaleable, more revenue can be earned
• By making your business more efficient, a larger percentage of that revenue lands on the bottom line
• By making your business tech enabled, and potentially layering in some digital first products/services your business can appear less risky and more "exciting" to investors
• By making your business more attractive to investors you can secure a higher valuation multiple

As the chart above shows, when your business valuation is based on larger EBITDA and a larger valuation multiple, the impact on your business valuation is profound.

This guide will equip you with actionable steps that your team can start implementing today.

But what if you don't want to go it alone?

We've got you covered.

Join our SME Growth Cohort where you can bring your questions to the weekly, live Q&As and share your journey with peers.

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I have worked with Graham since 2016 in what started as a technology advisor role. Our team quickly learned that he brought invaluable business acumen. Whether it has been technical mentorship, establishing processes, hiring freelancers, adopting AI or exploring the intersection of business and technology, Graham's input has been a critical part of unlocking our growth. Joining his Growth Cohort would be time and money well spent.

-- Tim Waxenfelter, Endurance Learning

Without further ado, let's get stuck in.

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Contents

• Who Is This Framework Designed For?
• Why Is This Framework Essential?
• What Is The 4-Step Framework
• Consolidate
• Integrate
• Automate
• Innovate
• Wrap Up
• What Next?

Who Is This Framework Designed For?

This framework has wide applicability, but it was tailor made for businesses with the following characteristics:

• Motivated to achieve rapid value creation
• Historic underinvestment in technology
• Trading for 10+ years
• £5-50M Revenue
• Profitable

This framework delivers maximum value for businesses who:

• Don't know where to start with tech adoption/digital transformation
• Don't know how much to spend on technology and innovation
• Don't have capacity in the team to work on new initiatives
• Don't know what is possible with modern technologies
• Don't have funds to invest even though they want to
• Don't know who to use to deliver a positive outcome
• Don't know how to implement modern technologies

If that aligns with your business, sign up to our newsletter where we share playbooks, deep dives and peer experiences relating to tech driven growth for SMEs/SMBs.

Why Is This Framework Essential?

This framework delivers results fast.

It appeals to business owners/execs who recognise that:

• They are falling behind their customers' expectations
• They are falling behind their competitors who have made better use of modern technologies
• They are struggling to exit their business at their desired valuation because potential purchasers think their IT estate is old/risky due to unsupported software; unpatched operating systems; bespoke software without documentation etc

More broadly, the Institute of Chartered Accountants report that the UK:

lags behind its peer group of the world’s most developed economies

They go on to say:

Investment in technology also offers some of the greatest potential to improve productivity...Companies, not just those in the UK, are finding it very hard to use the new digital technologies. And it seems to be only very productive companies, large companies, or new start-ups in technology areas that can use these tools. As a result, the most productive companies are pulling further and further ahead of the rest. The top 5% or so are seeing big productivity gains, and big differentials are opening up within sectors of the economy.

Research from Deloitte finds that:

An integral component of closing this differential in productivity is for UK organisations to maximise the potential that digital technologies hold...74% of the UK business and technology leaders surveyed in Deloitte’s Measuring value from digital transformation research collection think digital transformation is “the single most important investment now and into the future that organisations can make to drive enterprise value”.

And yet:

Despite their ambition, UK organisations lag the global average in several key metrics for creating value from investments in digital capabilities.

The 4-Step CIAI Framework presented below will enable your business to overcome these challenges that are frequently faced by SMEs/SMBs. Your business will become a technology leader enjoying those productivity gains that are out of reach for many of your peers.

What Is The 4-Step Framework

The 4-Steps of the CIAI Framework are:

1. Consolidate
2. Integrate
3. Automate
4. Innovate

A key principle of this framework is that your technology investments should deliver a strong ROI.

To achieve that we start by consolidating, integrating and automating the IT estate and associated processes. We focus our efforts and investements on low risk initiatives where we are sure about the value we will create through eliminating waste, efficiency gains, simplified processes etc.

We are working towards becoming an innovative business but the problem is that innovation is, usually, much less certain. We therefore expect our investments in innovation to be smaller while at the same time having the potential for much larger, even uncapped returns.

This approach to risk management is not new.

Gartner, tech industry analysts, would call this a bimodal strategy:

the practice of managing two separate but coherent styles of work: one focused on predictability; the other on exploration

For fans of Nassim Nicholas Taleb, this approach aligns with his barbell strategy:

a combination of extremes kept separate, with avoidance of the middle

The aim is to focus most of your resources on optimising your core business. These are low risk, predictable ROI investments producing incremental improvements. Eg process efficiency, increasing customer LTV, acquiring new customers more easily etc.

Then you make smaller, higher risk investments that have the potential to deliver transformative impact and outsize returns, with capped downside. Examples could be using AI for end to end automation powering on-demand services, hyper personalisation or even developing an entirely novel product.

We avoid investing in the middle ground where risk might be significant and returns unlikely to be stellar because the risk of measurement error in this zone increases the likelihood of low or negative returns.

If you're not sure how to evaluate the risk or return of these investments, join the cohort to ask your questions and hear from others:

Consolidate

SMEs of a certain age have a tendency to have collected a fair amount of "IT baggage" over the years. This tends to manifest itself in several ways:

• Low quality, bespoke software that is not fit for purpose
• Fractious relationships with outsourced vendors that blocks progress
• Legacy, unsupported systems that customers hate
• Customised enterprise software that has become so cumbersome and unstable that nobody wants to touch it
• Inventories of servers and storage that is no longer used, but can't be switched off because nobody is sure what will happen
• Expensive, over spec'd infrastructure that is a drag on budgets
• Security holes that could cause massive brand damage if they were exploited
• Poor data that frustrates customers and team members alike

The Consolidate phase of the framework is where you take stock and get your house in order.

Here's how you do it:

Team - get your team on board, establish effective ways of working, set high standards and get them excited about the adventure they are about to embark on and the skills they are going to develop.

Business analysis - what does your business do to create value? What are the internal processes that you operate in order to create that value? We'll be using this piece of work multiple times in this transformation framework, so it will pay to be thorough.

Audit your estate - itemise all your hardware, systems, datasets. What is it, where is it, why do you need it, who supports it, when does the licence expire, who uses it, what do they think of it etc etc.

Cross reference - map your IT estate to the business processes you mapped out. Highlight anything that seems redundant.

Cut - let's start by eliminating waste. Sure this saves cash, but it will also save you time later on. A smaller, simpler digital footprint will be easier and less risky to operate and maintain

Vendor management - a small number of well managed outsource partners will give you much better outcomes for far fewer headaches. Decide who you want to work with and who you want to chop.

Improve - your business analysis and audit of the estate should have given you a big list of things that don't work well or which pose a risk to the business. This could be because the digital solution is out of date or not well suited to the business process, or it could be because the digital solution is low quality. Either way, get it sorted.

Optimise - is your spend efficient? Could you use auto scaling infrastructure, are your API quotas or SaaS subscriptions the right size, are you a 9-5 business paying for 24/7 support?

Checkpoint

At the end of the Consolidate phase you are aiming for:

• Increased agility to do more with less
• A clean foundation on which you can build
• Elimination of wasted spend that can be redirected to productive investments
• Time saved managing infrastructure, systems and outsourced vendors more effectively

Integrate

The Integrate step is all about connecting your IT estate, sharing data between your various systems and eliminating data silos.

It sounds simple but there are nearly always complexities due to a mix of the following:

• Some systems might have been commissioned literally decades before others
• Computing paradigms change over time, eg mainframe systems -> PCs -> Internet -> Cloud
• Different systems store data in different formats
• Different systems expose data using different protocols
• Some systems can handle high throughput, others can't
• Some systems validate data well, some don't validate data at all
• Some systems assume a certain type of data must be unique, others allow it to repeat
• Etc, etc

Over time, as companies grow they add systems to their IT estate. Usually this is to provide new capabilities, but sometimes, especially when growing through acquisition, new systems are acquired that duplicate, or at least overlap with existing systems.

Not only does the IT estate grow larger and more complex over time, but data volumes grow. Unless there is a particular focus on data quality it is, unfortunately, common to see IT systems fill with low quality data. This might be due to absent validation and enrichment, for example absence of a postal address lookup, or it might be because people don't have the time, or inclination, to keep CRM records adequately and accurately updated.

Regardless of the cause, low quality data is a barrier to successful integration between systems and you MUST know what data issues need solving/mitigating before building integrations.

Assuming we mapped out our IT estate and tidied up our data during the Consolidate phase, how do we go about integrating our systems?

The first task is to understand what type of integration you need.

Do you need to process millions of micro transactions per day in real time?

Do you need to be able to add/remove systems to/from your IT estate frequently?

Do you have an internal technical team who can manage your integrations or do you rely on outsourced IT partners?

Do you want to empower citizen integrators across the business or just the IT team?

Depending on your objectives you should choose a different set of tools.

Some are developer-led, eg event streaming and message brokers, some are targeted at less technical business users and some are hybrid, bundling code, low code and no-code into a single solution.

A recent survey of the integration market found 100+ iPaaS, data integration and event streaming/message brokering tools. iPaaS, or Integration Platform as a Service, is a cloud based tool that you purchase on a subscription model and that gives you reusable building blocks that most integrations are built with in order to speed up your integration efforts. Today iPaaS is the fastest growing tool used for system integrations.

Picking the right solution from all of that choice can be tricky, but it matters. It matters both in terms of the suitability for the use case you are solving for as well as commercially.

From the perspective of usability you will find that some tools aligns better with your target users than others, some will be designed for speed of integration while others may focus on robustness, some might focus on real time capability and others on large data volumes.

From a commercial perspective, some integration tools are charged on throughput, some on per user licences, some on number of integrations while others have open source licences that your dev team can use.

The decisions don't stop once you have chosen the tool.

Next up is implementation patterns. The last thing you want is an integrated estate where every integration is handled differently with no respect for a common set of integration principles with each integration owned by a different team member. Very quickly this will become an unmanageable mess.

Instead, start by agreeing the integration patterns that best serve the objectives you outlined previously. For example, in a fairly small estate where a handful of systems only integrate with one or two other systems it might be optimal to integrate systems directly. But on a larger estate where multiple systems must be connected with several other systems then it can be optimal for your integrations to build in abstractions and reusable flows.

And finally, before integrating two systems, be sure that it makes sense. Do the numbers stack up? Ask questions such as:

• How long will each of these systems exist in our IT estate?
• How difficult/risky is the integration?
• How much effort will this integration take and how much will it cost?
• What is the value of integrating these two systems? (Remember that time saved due avoidance of errors due to manual input is often a large source of value)
• How much time will be required to manage this integration once it is operationalised?

Checkpoint

At the end of the Integrate phase you are aiming for:

• Elimination of data silos
• More valuable data that you can use to drive top line growth
• Improved data quality to cut errors, reduce wasted time and enhance customer experience

Automate

Once you have consolidated your IT estate and integrated your systems you are ready to automate your operations. Automation can come in many forms, for example:

• Automate the flow of data between your booking system and your CRM
• Automate employee onboarding/offboarding processes
• Automate your software releases
• Automate your infrastructure scaling
• Etc etc

But before you automate a process, audit the process.

Does it work?

Is it efficient?

Could it be improved?

Has it been designed to work around a strongly opinionated piece of legacy software?

Businesses collect baggage and unfortunately bad processes are one giant piece of baggage that a lot of businesses carry.

When the prospect of automation comes along teams may rejoice, hoping that their clunky, fragile, painful process will no longer be a problem because it will soon be automated.

Well, I have news for you.

A bad process is still a bad process even after you automate it.

In fact, an automated bad process can be even worse than a really time consuming, manual, bad process. Suppose this bad process has an unreliable data source, or depends on systems that are old and fragile. Post automation you might be creating junk data even faster than before, or you might be causing system outages because those fragile systems aren't designed for frequent, automated requests, or worse, you might automate decisions based on unreliable data.

Once your process audit is complete and your processes have either been accepted, improved or junked you need to establish the business case for automating those processes.

Automation is not free, you will incur costs in the following places:

• Designing the automation (likely to involve multiple stakeholders)
• Implementing the automation (likely to use the iPaaS you implemented in Part 2 - Integrate, or CI/CD tools)
• Testing the automation (multi system testing can be complex)
• Operationalising the automation (you need to monitor the automation and somebody needs to be able to remediate issues)
• Licence fees (your automation is likely to be built using commercial software)

You need a solid business case that demonstrates how a solid ROI will be achieved after incurring those costs.

There are two, often overlooked principles in creating that business case:

1. Don't downplay the value that can be created. Too often the benefit case is measured only in terms of time saved by people who no longer need to complete manual tasks. While important, it can be the case that just as much value comes from improving data accuracy, or even from staff retention if removing a mind-numbing task improves team moral. This visual from Deloitte offers 46 KPIs that you might consider using to measure value.
2. If your business case says where you will be finding value, make sure you can measure it. This isn't for vanity, it is so that you can test your assumptions, course correct if those assumptions proved to be wrong and evaluate the success of the project.

When you come to implement your automations it is easy to think of it as a task for the tech guys.

Essential requirement - make sure the people who operate the process are part of the project team. You want their input every step of the way if you want to make the project run smoothly and get the best possible result.

Repeat after me - "business automation is not an IT initiative".

Checkpoint

At the end of the Automate phase you are aiming for:

• Enhanced scalability
• Automated end to end processes
• Enhanced customer experience due to increased quality and delivery speed

Innovate

The Innovate phase is where you shift gears.

You have spent time getting your IT estate in order.

You have made low risk, predictable ROI investments to tech enable the business.

Your IT estate should be more reliable, easier to manage, more cost effective and integrated. Your data should be high quality, trusted, accessible and used to make value adding business decisions.

You should have made frequent, iterative improvements to the existing business. On top of operational efficiencies you should have improved customer experience. For example:

• Your joined up data means you don't ask for multiple re-entry of personal data
• Your integrated systems allow customers to service their account on-demand, 24/7
• Your accurate data means customer comms no longer contain incorrect, out of date or incomplete data
• Your auto scaling infrastructure gives customers decent performance even during peak times

At this point you have proven that you can invest in technology and deliver a solid result.

Now it's the time to take some big swings, but always observe the golden rule of the Innovate phase:

Make asymmetric investments in innovations that offer uncapped reward but that can't screw up your core business.

Let's unpack that, how can an innovation offer an uncapped reward?

This rules out most operational efficiency gains. There is only so much efficiency you can squeeze so the reward from finding efficiency gains is capped. Besides, you should have tackled this in the Consolidate, Integrate and Automate phases.

That means we are looking to grow the top line.

We are looking for innovations that allow us to:

• Sell more to existing customers
• Expand our reach to new markets
• Disrupt our business model by developing a unique product/service that can leverage the IP/brand that has been built over years to bring something novel to the market

At the same time we take a defensive position in refusing to screw up the core business by chasing such innovations. That means we don't divert huge sums of cash that will starve the core business of working capital, instead we design an approach that can be delivered with relatively small initial investments and then we iterate.

It isn't all about cash though.

You also need to ensure you don't over commit your people, leaving them without enough capacity for core business operations. If they are overstretched you will likely end up with the worst of both worlds - deteriorating efficiency and quality in your core business and failed attempts to innovate.

With those ground rules out of the way, let's start to think about how we can innovate. A simple framework to help you uncover innovation candidates is as follows:

Rigorous business case assessment is vital. If you don't know how to get started check out this article that takes you through estimation of the costs, benefits, risks and how to choose which opportunity is best.

Once you have identified the innovation with the strongest business case it is almost time to bring it to life.

Almost, but not quite.

First you need to know what success looks like. Your business case must have made some assumptions about the value the innovation would create. Which KPIs did you use in those assumptions? Now is the time to figure out how you are going to track those KPIs.

You need to know whether your assumptions were sound. As things progress you need to look for signs that you are on the right track and if not you need to consider how best to course correct.

Now, how are you going to create your innovation?

In-house, outsourced delivery partners, freelancers etc?

I have used most models over the years and anybody who tells you that one is universally better than the other probably has their own agenda. They can all work fantastically well, they all have situations to which they are better suited and they can all be a disaster. My advice, regardless of which route you go down, is to make sure you have internal technical leadership setting the strategy, overseeing the delivery, talking to stakeholders, talking to the board etc.

The final step in the Innovate phase is to bring your innovation to the market.

Is it a cross-sell that your existing team can crack on with?

Is it defining a brand new category in the market requiring specialist domain knowledge?

Or is it somewhere in between? Regardless, "build it and they will come" is rarely a good strategy, so make a go to market plan and execute it.

Checkpoint

At the end of the Innovate phase you are aiming for:

• Value adding products/services
• A modernised business operating model
• Brand new target markets by leveraging existing IP/data

Wrap Up

It's time for you to take action.

Remember, your goal is to build a business that is:

• More efficient
• More scalable
• More profitable
• More valuable

What can you Consoidate by the end of the month?

What systems should be integrated as your top priority?

What business process sucks up the most time and/or creates the lowest quality data that could be solved through automation?

What innovation could drive your business into a different valuation ballpark?

What Next?

If you've got a clear idea of where to start, there's no time like the present.

Good luck!

We'd really like to hear how you get on and a mention on LinkedIn would be greatly appreeciated. Click this link to open LinkedIn's share URL window (it won't auto post).

If you'd prefer some support along the way the SME Growth Cohort is ideal.

It's also free until we hit 20 members.

It is a group of SME owners/execs who share an interest in using technology to drive business growth. We meet virtually once a week for a live Q&A and discussion around the CIAI Framework and other playbooks.

Graham’s SME Growth Cohort has been packed full of useful takeaways, relevant to any forward-thinking business owner. As the founder of a new tech startup, it was great to be able to ask direct questions and learn from the experience of not just Graham, but the other members of the cohort too. From introductions, to tech knowledge and strategy, these sessions are an absolute must for any SME business owner that is keen to learn how to do things better than they already are. Would definitely recommend!

-- Tom Dalton, Stealth Startup

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