Sometimes, it takes an outsider to provide a fresh perspective and give business leaders a gentle shove in the right direction. My question to CEOs is often, 'If you were starting up again tomorrow, which specific piece of the business would you start first and why?' or ‘There’s one branch of your business that you may not have invested a lot of resources in, but that could make a lot money. What is it?’. These tends to flush out the most profitable parts.
Given a bit of time to think about it most can identify an area of their business that fulfils these criteria. It’s often something fairly niche and low cost but with a high margin. It’s something that you could make a fortune from if you did loads of it but you still need the broader business to bring customers in. If you’re going to expand this arm of your business it will take a lot of work, re-organisation and publicity. The arduous short term requirements often put people off. Of course, the longer term benefits could be massive.
I once worked with Tactical Solutions, a field sales agency, which was a testament to this theory. The company was going out day after day putting products on shelves; however one of the real potentials for profit was in product recall. We came to realise that this was their niche and an area that should be honed in on. For example if an FMCH company were to call up and say they needed to recall a batch of tinned soup they wouldn’t be in a position to negotiate a price because they would need all of Tactical Solutions’ 500 staff to go out and collect those products as quickly as possible. Another benefit was the fact that the insurance company would pay out for it and so it wouldn’t really cost the manufacturer anything.
Tactical Solutions had the staff and processes in place to do this job effectively but it wasn’t publicising it or presenting it as a service in its own right. When ProductRecall.co.uk was set up, the exercise produced almost £100,000 of bottom line profit within a couple of months. This clearly demonstrates the unlocking of hidden value.
Companies have to learn to adapt as times change to fulfil their profit potential and this may not be in a way that is immediately obvious. I once worked with a radio equipment company that felt pressurised to switch to digital technology as their industry developed. It would have cost them around a £1m to go digital but everyone else was doing it so it seemed like the only solution.
However, it transpired that it would actually benefit them more to do nothing at all. There was suddenly a massive dearth of companies supplying analogue equipment and a hangover of people who didn’t want to go digital as they didn’t see the benefits in it. As some people still choose to buy new analogue radios, we identified that there would be a huge demand for an analogue radio maintenance company. So we rewrote the brand and the website and that’s what they became. They didn’t have to invest the money in new technology and they were making a higher recurring income than ever before.
It doesn’t matter what the industry is, finding the hidden value is all about focusing on your strengths, finding a niche and adapting to changing trends. The solution may be right under your nose. Companies have to stay dynamic and be prepared to evolve their strategy in order to keep their business in the best condition that it could possibly be and most importantly, be prepared to continue to take risks.
Mark Mills is a business broker and founder of Comerga Consulting.