Why sales traction and stability is important
Two focus areas are predominantly important when creating value and moving the business forward. Eventually to the next level. Sales traction and sales stability is the oxygen and blood of the business.
Before we talk about value creation, we need to quickly understand the broad concept of assessing the value of a company. Discounted cash flow valuations, valuations using multiples or peer comparisons are only one part of the exercise. The qualitative parts of a business valuation are equally important as the excel exercises. The intention is to access the durability of the cash flow that is financially valuated.
Topics examined include vision and revenue potential, management quality, production set up and a long list of similar intangible qualities of a business. Top of the list comes sales traction and sales stability.
Smaller, sometimes also larger, professional businesses are often relatively dependent upon one key product or service, alternatively upon a few key customers. Although the business might do well there are also some challenges how to value such a business. Historical track record is simple no longer enough to avoid certain valuation discounts to your forecasted financial projections.
Investors, bankers and boards like to see continuing progress. Meaning that sales have reach a momentum, beyond those historical successes only. A sustainable almost self-feeding sales growth. You will achieve that sales traction status and perception with a few actions:
- Find traction in demand, in superior quality, in superior or unique customer value-added from your product or service.
- Find traction in a diversified customer portfolio. Reducing any single-customer dependency.
- Find traction in a diversified sales portfolio. Reduced key account manager’s dependencies.
- Find traction by introducing new nearby market segments (with new customers).
Traction is momentum. To build momentum and near to self-feeding sales growth you need an edge in either sales pro-activity, or in the product you offer. For some services the business model can serve to support traction. Microsoft created traction when switching from charging $300,- per CD for an Office package to charging $60,- annually in recurring and automated bills for the same service.
High-risk ventures and non-mature businesses has one thing in common. Sales fluctuate. This causes concern to any investor, banker or board. No-one likes uncertainties. Planning for the future is difficult. Risks increases. Attention is required and management tend to focus on sales only, missing out managing the entire business. And once those sales peaks occur, the organization tends to be stretched to their limits in an non-sustainable way.
Those few large success-orders are great individual achievements by the brand and by the sales team. To the company, to the entire organization and to the valuation of the business they tend to be onerous however. Opt for sales stability.
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