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Digitalization is a huge trend right now that defines and shapes many businesses. It is impossible to imagine a supply chain, restaurants, service providing companies, construction companies, and many other businesses without holistic software solutions and apps. The benefits of digitalization are obvious. It helps to optimize working processes within the company, reach out to your clients, and create web and mobile presence able to attract not only customers but also potential investors interested in your business.
Without doubt, software development can add value to your business. So if one day you decide to sell your business, expand your company horizons, or find new growth opportunities, then the software can become your main advantage, able to attract either good investors or potential buyers of your business. So, without further ado, let’s dive into this topic and discover how to increase the value of your company, in what solutions it is better to invest, and how to value the project which development you are going to initiate.
Some thoughts about business value
Business value is a holistic concept and it can be defined by numerous factors. Since the main goal of business is to expand the capabilities of the services or goods it is aimed to distribute, so the business value can be measured taking this goal into account. So if you are considering digital transformation and still have doubts whether any technology can boost your business value, we would recommend you to pay attention to the following points:
- The impact of technology on your company revenue.
- The ability of technology to lower costs you are currently spending.
- The ability of software to boost your company productivity.
- The impact of implemented technology on your employee management.
- The ability of technology to improve customer service and satisfaction.
If the technology can address all your current challenges then it can be called a good investment. And as a result, it can boost your business and increase its value. According to the article posted by Forbes innovation technologies can play a supporting role in any business and on top of that they can drive the business value drastically.
After considering some pros and cons of software development you may ask yourself quite a reasonable question: “Why should I invest in something new if I already have some good solutions helping my company to function fine?” Of course, maintenance of existing digital products seems a more reasonable decision from a finance and time perspective. However, you should take into account that sticking with old business ways will not open new doors for you and will not let you get new business value. That is why you should shift your focus toward innovation. Technology develops extremely fast and if it is not used in your company, then chances are that some years later your competitors who use better and newer technologies will take leading positions on the market.
Let’s take a look at a good example to prove our point. The American Enterprise Institute made a research in which they compared Fortune lists of top 500 companies. The first list demonstrated the leaders of 1995 and the second one included the main companies of 2017. It turned out that only 60 out of 500 businesses were mentioned in both lists. Why exactly did it happen? Simply because all other companies missed their innovation opportunity. The market has been changing, new technologies appeared each year and those companies that ignored technological progress or stuck with the old methods were left behind.
That is why digital optimization is as important as it has never been before. And here are a few examples of how software development can increase your business value.
If you are using your custom solutions then your asset value can become higher which is great, especially in case you consider selling your business. Well-organized processes within a company help to save a lot of money and make it more profitable. That is why you need various systems for hiring and training new employees, client databases that can be accessed from numerous devices, solutions to perform accounting and productivity control, etc.
Your employees and client base are always under control if you have developed your CRM or ERP. Any company is valued for its client base, the efficiency of employees, and the ability to manage both clients and workers properly. So if you aim to make your company bigger and you need to find investors, you’d better pay attention to software optimization first. Digital solutions can help you put all managing things in order and make sure that your business is ready to grow.
With the perfectly fitting software, you will always be in charge of your financial side of the business. Your overall money turnover (all expenses and revenue) is what demonstrates the true picture and value of your company. So advanced accounting software can help you better control your finances.
When exactly should I think about software development?
Any business goes through several important stages and sooner or later it faces the necessity to grow. While some company owners are ready to expand their business, others may be struggling because they either do not have enough money or they are not ready to hire new people, or they simply do not have any major competitive advantage. And that is the exact moment when you as a business owner should resort to software development.
Going digital and ensuring both web and mobile presence is crucial if your goal is one of the following:
- You want to sell your business and need to boost your profits.
- You want to continue to invest in your business but need partners for this.
- You want to expand your business by adding new departments or hiring a bunch of new employees.
The software can become an important strategic tool able to help you on your way to changes. If you synchronize your business into one holistic system, you will be able to see its real value and possibilities it may have. Moreover, technology can increase customer satisfaction and improve the overall experience of your business which also adds value to it.
Thanks to technology you will be able to increase accessibility to your services and goods which can influence your company income; keep all your documentation under control and in one place; hire and train your employees easier and more systematically. And there are way more advantages your company can get. If you invest in high-tech technology solutions like AI or IoT you will get even more advantages in the future. With IoT you can create a smart environment within your company which also drives its overall business value drastically.
Here are some benefits any advanced technology offers:
- Easier communication within your company and with clients as well;
- Competitive advantage over the competitors who do not use any modern technology;
- Economic efficiency and a massive reduction in costs spend on crucial processes;
- Better efficiency of your company;
- The decision-making based on accurate figures, facts, and analysis;
- Improved range of services and better supplying;
- Better risk management and even an ability to forecast some possible risks.
How to define a value of software development for my company?
If you imagine that your company is a box, then it will be easy to explain how to define its value and understand that it increases. Your company has its initial cost but if you add something to your box it will get even more expensive, right? Let’s say your box has a huge client base, a bunch of professional employees, great offices with equipment – all that makes it quite valuable. But what if you add some contemporary software solutions or even machinery and robotics? Well, your company will get even more valuable. And on top of that, it will be able to make more profit.
However, you should not forget that building those software solutions and add them to your company can be quite an expensive decision. So how would you know if it’s reasonable to do this and how much money do you have to spend? There are up to 10 ways to discover your company’s pre-money valuation. You can check them all here. We have analyzed them all and separated two that are the most effective.
#1 Scorecard Valuation Method. First of all you need to know the value of your box (meaning – how much does your company cost right now?). Then you think about the main criteria which are: team capacity, productivity, and technology readiness of your company, the size of the market, and your competition. You write a percentage of current value for each criterion and then adjust that value either for all four criteria or just some of them. You also need to evaluate each criterion based on the impact it puts on your company right now and its success possibility. Check out the picture below to get a better idea of what it is all about.
Source: Medium
Once you’ve checked how much value your box can potentially gain if you improve those 4 criteria, it is time to think about software solutions able to optimize those business processes.
#2 Comparable Transactions Method. Every business probably has a crucial indicator based on which you determine its success, growth potential, and of course its value. For some businesses that an indicator is a number of satisfied loyal customers, for others – the number of deliveries they made in a certain period of time, etc. So using a comparable transaction method you take the numbers of your company and the numbers of the corresponding indication of the other companies and compare them. It is better to check out several companies to get more reliable numbers.
Source: Medium
Then you analyze the figures and calculate key multiples (such as margins and growth rates), determine the valuation and output. If your numbers and value are lower than in the other companies, then you should pay attention to optimization. Think about what can be changed in the daily workflow to improve your indicator figures and reach a higher index.
To sum it up
Technology has reshaped the business world and become one of the most powerful tools any company needs. Digitalization is able to turn every business to a whole new level and add a great deal of value to your company.
By developing custom solutions for your company you are investing in its future. So whatever decision you make – to sell your company or make it bigger – you will be one step ahead of all your competitors if you are “armed” with holistic solutions developed taking your particular business needs into consideration.