How do you develop a business that not only runs efficiently today, but builds value over time? In this e-book JPAbusiness director James Price reveals how to drive value in your business by developing quality customers, predictable suppliers and, most importantly, capable and committed staff.

1. Business Value
Drivers
By James Price, BBM

2. 2
jpabusiness.com.au
+61
2
6360
0360
Table
of
Contents
Business
Value
Drivers
....................................................................................................
3
What
are
the
key
value
drivers
in
business?
.....................................................................
3
How
to
build
value
with
customers
.......................................................................................
4
How
to
build
value
with
suppliers
.........................................................................................
7
Tips
for
managing
relationships
with
suppliers
..........................................................................
9
How
to
build
value
with
your
people
.................................................................................
11
Disclaimer: The information contained in this e-book is general in nature
and should not be taken as personal, professional advice.

3. jpabusiness.com.au
+61
2
6360
0360
3
Business Value Drivers
By James Price, BBM
In this e-book we take a look at Business Value Drivers:
• what they are;
• why you need to focus on them, and
• how to ensure you’re business is not just successful today, but that it
builds value over time.
What are the key value drivers in business?
Value comes in two different ways:
1. During the course of operations, and
2. At the end, when the owner sells or passes on the business.
Many people run successful and efficient businesses, but don’t take the time
to sit back and ask ‘what is actually driving the value in my business?’
Understanding those value drivers and focusing energy on them is the
difference between having a business that runs efficiently today, and
one that builds value over time.
So, what are the value drivers in business? They relate to three key parts of
the business:
• Customers
• Suppliers
• Your people

4. 4
jpabusiness.com.au
+61
2
6360
0360
How to build value with customers
Driving business value in relation to customers means ensuring you have a
quality customer base.
You need to consider:
1. How often do clients purchase from you and what is the ticket
size of their purchase? The more often a customer purchases and
the larger the ticket size in isolation, the higher the quality of that
customer.
2. How diverse is your customer base? A firm with $1M revenue and
10 customers is a much stronger proposition than a firm with $1M
revenue and three customers.
3. To what extent do those customers pay for what they buy? A
quality customer is one who pays on time. If half of your customers are
in arrears 90 days you have to question whether you have a quality
customer base.
4. What market are your customers operating in? It’s no good having
customers in a market that is suffering, unless you have a proposition
that can make money in that situation. You must look at both the quality
of the customer and the quality of market they operate in.
Now that we can recognise a quality customer base, how do we get one?

5. jpabusiness.com.au
+61
2
6360
0360
5
Don’t take the customer for granted
There is a risk that people in business will just sit back and expect customers
to come to them.
For a start, no one has to deal with you, so don’t take the customer for
granted. That’s old business economics.
Secondly, by sitting back and thinking ‘business is good – I’m busy – I’m
servicing customers’, you’re not designing the outcome you want. You’re
allowing the customers to design the outcome they want.
It’s important that customers’ needs are met, but it’s also important that the
business’s needs are met.
Planning
The key is to have a deliberate strategy for building a quality customer base.
Ask yourself:
• What is my business providing to the market?
• What’s the size and geographic spread of each market?
• What are the customers’ needs in each market?
• What’s the special thing I’m bringing that no one else can bring i.e.
what’s my point of difference – service, product, etc…?
Now do a mud map of the potential customers that would see value in your
proposition.
Consider how you can penetrate that market, but don’t seek market share
for the sake of it. It must be profitable market share.
Once you’ve figured out what your customer portfolio needs to look like, you
need to figure out what business model will deliver to that.
Building a customer base is about business development, but it’s also about
understanding customer needs. It’s about delivering service; under-promising
and over-delivering.

6. 6
jpabusiness.com.au
+61
2
6360
0360
Think strategically
When you’re building a customer base, you’re building a portfolio. That
portfolio needs to provide you with a return in the short term, medium term
and longer term. It needs to contain customers of different sizes and shapes
and from different markets, that can offer a portfolio of different revenue
streams.
As a business owner you must take the time to sit back and look at your
customer base analytically. You may see ‘I’ve got a gap here’, or ‘I’ve got
business lines a, b and c, but all my customers are in business line c – how
do I add diversity?’
This sort of thinking makes you more attuned to the environment and the
markets you’re working in, rather than the business you’re working in.
It’s about being deliberate in getting a diversity of quality customers.

7. jpabusiness.com.au
+61
2
6360
0360
7
How to build value with suppliers
Suppliers is another key value driver in business.
Suppliers make up a large part of the cost of doing business, but more
importantly they assist in providing consistency of whatever product or
service you deliver.
The degree to which you’ve got that continuity locked down will allow you to
drive more value in your business. If you’re servicing a customer and you
know you can be predictable and deliver at a certain time, then you’re much
better at pitching to that customer against a competitor.
Critical as a business driver of value is to have a set of suppliers who are:
• predictable;
• provide quality, and
• deliver to a specification. (That ‘spec’ might be price based, time
based or quality based, or it might be all of those.)
Some businesses can consider supply as simply a cost game. For example: ‘I
want X amount of cardboard boxes to pack my product in to send overseas.
As long as I have them here every month I don’t care what they look like.’
But for other businesses, such as those involved in distribution, supply
continuity is critical. If they can’t rely on supply then they can’t service the
customer according to the proposition they put in front of them.
Ensuring predictability of supply
There are a couple of ways to ensure consistency and predictability of supply.
One is to have a diversity of suppliers but, if this is not possible for your
proposition, then it is critical to develop relationships with your suppliers.

8. 8
jpabusiness.com.au
+61
2
6360
0360
Diversity
If you choose to have a diversity of suppliers then you’re not beholden to
anyone.
You may choose to focus on sales and distribution rather than quality, and
secure your product from three or four manufacturers in different markets,
locations or based on competitive sourcing agreements.
This way you are managing your supply to protect against market and
geographic risk and to secure volume to distribute.
Develop relationships
Another approach is to develop relationships with single suppliers. This
relationship will be much more than simply a transactional situation with a
supplier, where you say ‘I want X and I’ll pay Y and that’s it’.
It’s a deeper relationship where over time that supplier gets to know your
requirements and there is predictability about how to deliver to your needs.
If you have predictability
on supply then it’s easy for
you to provide
predictability for
customers. If you don’t
have predictability on supply
side, then you have to make
all sorts of decisions to
ensure your customer is not
burned from bad experience.
For example, if you have no
predictability about dealing
with your suppliers, then typically you will hold stocks of components
because you can’t rely on your manufacturer to deliver them on time.
Holding stocks means you have to put working capital value in those stocks
in order to satisfy your customers’ needs. You will then have to cost the
amount of those stocks into the price that you’re passing on to your customer.

9. jpabusiness.com.au
+61
2
6360
0360
9
So the customer loses and you lose, but the manufacturer still does
whatever they want.
That’s an unbalanced value chain, because you haven’t dealt with the value
driver relating to suppliers.
You’ve chosen as a business owner to take on the risk yourself rather than
saying ‘Right Mr Supplier, how can we reach an arrangement where we share
the risk on this? You give me more predictability and for that predictability I
may be able to share some of the cost of holding stock.’
Tips for managing relationships with suppliers
Size matters
Some suppliers are easy to deal with and as a private business person you
can develop that relationship over time. Other suppliers are big multinational
companies that you, as a business, don’t mean much to. So you’ll be able to
manage your relationship depending on the size and shape of the supplier
and your history with them.
Lock it in
It’s very important that you document any supplier relationship that is
significant in terms of what your business provides to customers. It may not
be a heavy duty contract, but it is an understanding of the continuity you need
in terms of the product you’re providing to your customers.
Mind your supplier’s business
If your business is beholden to one supplier and that supplier is having
difficulty, then you can leverage the strength of that supplier by taking a closer
interest in what they do.

10. 10
jpabusiness.com.au
+61
2
6360
0360
If you’re a significant part of that supplier’s business, then you may be able to
influence and even control what’s going on with that supplier.
Often poor supply issues are left unaddressed because the old adage in
business is ‘focus on what you can control, not on what you can’t’.
But with supplier relationships you can leverage them if you develop a
relationship and look at ways of balancing the risks between the supplier and
your business.

11. jpabusiness.com.au
+61
2
6360
0360
11
How to build value with your people
I don’t wish to prioritise the key value drivers of customers, suppliers and
people, but if I had to, I would say that ‘people’ is number one.
Why?
Because ultimately every business relies to varying degrees on humans. And
that’s a good thing, because it is human innovation and ingenuity that
provides point of difference.
Building value within a business is about ensuring that your internal resource
capability – your people – is able to meet your customers’ expectations
ongoing, regardless of a change in ownership.
People are critical in driving value in a business, but they can also be
critical in detracting from business value.
Succession planning
Family businesses are very
common models but often families
don’t think about – or talk about –
succession.
For example: ‘If I as a family
member was to get a life-
threatening illness, or if I had to
spend all my time on personal
issues because someone else was
sick, how would I be replaced and
what impact would that have on the
business?’
These hard and confronting questions are often put at the back of the filing
cabinet and not discussed or resolved.
But as a value driver for the business, they are critical questions.

12. 12
jpabusiness.com.au
+61
2
6360
0360
Management is not the answer
The strength of small and medium-sized business within Australia often
comes down to single or joint owners that drive the business themselves.
So I’m not suggesting that every business has to be under management, that
the owners shouldn’t work in the business, or that they should sit aside and
hypothesise about the future while their businesses are managed, because
many, many successful businesses are driven by owners.
But the key issue is how do you get the value driver of people in balance so
that the business is not solely dependent on that owner?
An imbalanced people portfolio
If you’re the main honcho controlling and driving your business, you need to
look around and say: ‘Right, if I wasn’t here, who could I rely on to drive this
on my behalf?’
If the answer is ‘I don’t have anyone’, then you have an imbalanced people
portfolio. (And you’re not alone – it’s a common problem in small and
medium-sized businesses.)
You either accept that you’re devaluing the business in the long term –
even though you may be getting value today – or you find someone.
Sometimes there is an existing staff member who can be developed, not to
replace you, but to take account of the things you do to drive the business.
Identify the gaps they need to have filled and develop a professional
development and training program that allows them to develop their
expertise so they can be the second line of defence.
It’s a positive for your staff member and it should be positive for the value of
the business, because you’re focusing on a value driver.

13. jpabusiness.com.au
+61
2
6360
0360
13
A second line of defence
Creating a second line of defence requires you to think about the culture
you’ve created around considering people’s roles and responsibilities and how
they’re measured, managed and developed within the business.
If you’re business is large enough, you may be able to develop a team who
can ensure the activity of the business can be maintained if you are suddenly
taken out of the picture.
It doesn’t mean that every person working in the business has to be a jack of
all trades, but it means there is a second line of defence in the event that a
critical role becomes vacant.
The term ‘team’ also needs to be considered in the broadest sense, because
often that team involves suppliers, contractors, people associated with the
business but not necessarily working in it, and of course staff.
Write it down
In many small businesses there are various procedures and manuals and
ways of doing things, but all too often these procedures are not codified and
documented within the business.
Often they are codified and documented within key people’s heads!
Think about the buyer’s perspective
When it comes to selling your business, one of the first things a prospective
buyer will ask you is: ‘And what do you do?’
This is a critical pressure test for value in the business and a critical factor
in the buyer’s decision to invest in your business.

14. 14
jpabusiness.com.au
+61
2
6360
0360
The buyer is thinking: ‘If I buy this business and walk in tomorrow:
• Who will do all the owner’s work?
• Will I have to recruit people to cover off on what the owner was doing
or is there a team in place who can drive the business?
• If the owner leaves what’s going to happen to the customers and
suppliers? Do they have relationships with other staff members within
the business?
• What’s going to happen to the revenue, the margin, the earnings?’
Again, predictability is critical.
You can’t give the prospective buyer a guarantee that revenue will stay the
same, but you can show them the quality of your business value drivers:
the quality of your customer portfolio, the quality of your supplier portfolio
and the quality of your people portfolio.