Evaluating company performance effectively can help build future value
In working with a client this week on their 2021 strategic plan, we first reviewed 2020 YTD financial and non-financial metrics to see what learnings we could get from them. The performance, despite COVID impact, was quite solid. My question to the team was, “did you outperform your competition or did all ships rise as the tide of your industry sector rose?”
This particular company serves a market sector that has been enabled by COVID and they’ve experienced nice growth. As the team discussed this, and subsequently did some market homework, they determined that key competitors have actually out performed them. Despite this company having a good YTD performance, they have reason for concern!
Early in my career a boss said to me, “Larry, don’t compare your business to itself. Compare it to peers and near peer companies as that will tell you more about how your business is truly performing”.
Over the years, I’ve come to learn the power of his advice. As a business owner/CEO, ask yourself how your company performance compares to others serving in your market. Here are some steps you can take to find out how other businesses, similar to yours, might be doing as comparison:
- Reach out to any directors or advisors you work with and ask for their insights. These individuals normally work with a wide range of businesses and could give you comparative insights.
- Speak with your CPA as they too may know companies that have similarities to your own and could share performance benchmark information.
- Introduce your company to an investment banker that serves in your market sector. These individuals are very knowledgeable about like businesses to yours and could offer insights. These professionals enjoy meeting business owners as they want to build longer term relationships with owners in the event they can assist one day with an exit event.
- Turn to your industry association and see what benchmark data they can provide.
Bottom line is this. Don’t assume your company performance is solid versus other players in your market. Don’t just compare your company performance to itself. Knowing how your company stacks up could identify opportunities for improvement and help build the long-term valuation of your company.
