Challenges

Mid-Market Companies Face Five Systemic Challenges

Inconsistent Growth

Despite recent stronger economic growth, many low mid-market companies are concerned about a coming correciton. Usually focused on year-over-year top line growth, owners should recognize that not all revenue is equal. Revenue can be the cheapest form of capital but not if it comes with hidden risks, precludes the potential of new technologies, fails to inspire needed talent to join the company or prevents locking in recurring revenue commitments. Getting the operating engine running efficiently is as important as chasing revenue for revenue’s sake.

Data from more than two thousand companies shows that many are still struggling with the operational effectiveness necessary for sustained growth in enterprise value. Note that 84% of companies are capturing less than 70% of their potential.

Fragmented Advice

Business owners rely on external advice for legal, financial, operational, technology, human resource, banking, leadership, marketing and other matters. But specialization means a narrowing of focus and a loss of integration of that advice. This can create incomplete, if not conflicting, strategies to grow value, improve operations and manage risk. As the value of businesses becomes increasingly intangible (e.g., intellectual property, business models, patents, designs, data, relationships), external advice from independent specialists has become a leading source of third-party risk.

The costs and risks of fragmented advice are foremost in transformation of healthcare. When care is uncoordinated, mistake are made, opportunities lost and patients can die. Fragmented business advice can do the same thing to a company. This Harvard Business Review article explains why recognizing this challenge and actively integrating advice can improve patient health and, by the same principles, enterprise value.

Operational Deficiencies

A businesses is like an engine, a collection of drivers, gears and actuators. If all parts are of good quality, maintained to specification and assembled correctly, the machine is more likely to run efficiently. The more parts that are out of specification, mechanically deficient, or misaligned, the more likely the engine is to run poorly and possibly not at all. Research shows that the enterprise value of a business is determined by 18 operational or market value drivers, each of which represents a critical component of a well-running business engine. Each company’s deficiencies are unique to its industry and operational situation, but represent an opportunity to add enterprise value and growth.

The average mid-market company has an operational deficiency equal to about one-fourth of its overall value. Of the 18 key value drivers, almost half of that value deficit can be found in the top five drivers. Knowing the identify and size of these deficits for a company is the starting point to a high return on investment growth strategy. See the top value drivers for our mid-market companies, representing a $2.5 million value growth opportunity for the average business.

Growing Complexity

A recent IBM survey of global CEOs showed that 85% considered complexity to be their greatest challenge. However, less than half felt they were capable of managing it. Mid-market companies are especially vulnerable due to what has become known as the VUCA economy – volatile, uncertain, complex and ambiguous. But to manage in this new economy requires more than just scanning the environment; it requires leadership, strategy, operations and culture to be “VUCA-ready.”

At a minimum, develop an appreciation for what it means to be VUCA-ready and why more robust information systems and strategic agility, even for a smaller company, are the minimum to manage growth. This article compares the impact of two executives with different capacities to deal with a VUCA environment and some suggestions of how you can start to build your own capabilities.

Unaligned Priorities

Running a business takes a lot of time, effort and attention. Keeping it afloat, much less growing in a competitive environment, can preclude spending time on everything else. And, while many people assert that they can “have it all,” a 2010 SHRM survey found 89% of respondents say work-life balance is a problem for them and more than half say it is a significant problem. Traditionally seen as an issue mainly for women, a majority of men now admit that it is a problem for them as well. Finally, although we would like to think that technology (e.g., telecommuting) might let us balance better, a 2012 Accenture survey of male and female business executives of medium to large firms found that 70% of respondents felt technology brings work into their personal lives. It is not getting easier and aligning priorities benefits from a process and support from inside and outside your business.

Recognizing and aligning priorities between personal family, community and business (and more) takes as deliberate an effort as you put into your business plan. Read this paper on the twin value gap, which focuses on the financial balance between your generating business s value and securing your family’s future. This twin value gap is just one part of the increased satisfaction that results from a more integrated and thoughtful alignment process.

Executives Face Internal Challenges Across 18 Key Value Drivers

Each business is unique but all share a common set of value drivers. These 18 drivers were identified from more than 30 years of research on business formation and valuation. Validated at MIT, these drivers and the underlying algorithms can be used to identify how large a value gap exists in the business and which drivers are most responsible, From these data, an owner can create a value buying roadmap for the highest ROI growth strategies.

The 18 value drivers shown at the left are the functions that must work well in every business. The five shown in red are the ones that our clients saw as the biggest factors holding back value in 2014.

Use our proprietary tools and data to find out which drivers hold your greatest growth opportunities. At no cost and within 10 minutes, you could have in hand the beginning of a roadmap to greater value for your business.

AEG Was Designed to Tackle These Challenges

The AEG mission is to “strengthen operational effectiveness to grow enterprise value and maximize an owner’s personal wealth.” For most of you, this is your mission as well. We built AEG specifically to address the above five challenges to mid-market private companies.

You want to grow and, if like most of your peers, this means more effective sales and marketing backed by operational excellence. We are effective because we see the bigger picture, from the start to the end of your business and beyond.
You want to focus on your business and are willing to engage independent external advisors. Rather than working on each individual symptom, our approach is to work together to provide an integrated solution, not piecemeal advice.
You want to tackle those parts of your business that deliver the highest return on investment and contribute most to operational effectiveness and enterprise value. Our proprietary mid-market company data and diagnostic tools creates a valid and transparent growth roadmap to do that.
You want to be confident of your success regardless of uncertainty. This success is tied to your awareness and agility, for which we can bring internationally recognized resources and best practices.
You want your hard work over years to be recognized and create a secure and prosperous future for your family. Because we designed AEG to focus on the whole owner, not exclusively the personal or business, we can create that future starting now.
You don’t face these challenges alone and are part of a community, industry and the country. We have impact because we are addressing a systemic, national challenge of private mid-market business success, which lets you take advantage of innovation across the country.
Finally, you are proud of the company have built and want to work with people who understand you. Because most of us are also business owners, we understand you and your connection to your business, your journey and your aspirations.

Inconsistent Growth

Fragmented Advice

Operational Deficiencies

Growing Complexity

Unaligned Priorities

Find Out More About AEG Solutions