The concept of marginal gains, made famous by the renowned British cycling coach Dave Brailsford, involves making small, incremental improvements to achieve your goals. As explored in the Forbes article, “How To Make Small Changes For Big Impacts,” these marginal gains can lead to exponential enhancements in many areas in life – both personal and professional.
The marginal gains approach can be used as a potent tool by business owners who are preparing to sell their businesses to a third party, key employees or family members. A healthy, profitable business is necessary for all types of successful ownership transfers.
Tailoring Changes to Your Exit Strategy
Before embarking on the journey of implementing marginal gains, business owners should consider their desired exit timeline and strategy. This ensures that the improvements will align with the overarching goal of maximizing business value before the exit.
Exit Strategy Considerations
- Third-Party Sale: Tailor improvements to showcase the business’s operational autonomy, profitability and low risk, making it attractive to potential buyers.
- Internal Transition: Focus on developing a leadership team and internal processes that ensure a smooth transfer of ownership with minimal disruption to the business.
- Timing Matters: Hopefully you have done your homework to develop your exit plan and now understand the estimated timing for your ownership transfer. Some business improvements may take longer than others such as developing a management team and increasing profitability. Plan your marginal gains accordingly and develop quarterly goals for your team to monitor progress.
Now let’s take a look at how business owners may use marginal gains to maximize the value of their businesses.
The Marginal Gains Blueprint for Business Owners
Strategic Implementation
There are two ways to make marginal gains to your business:
#1: Improvement by Subtraction
Examples include:
- Eliminating operational inefficiencies by implementing systems and processes that require fewer human interactions such as automating supply chain management, the on-boarding and training of new employees, and the processing of employee expense reports.
- Cutting overhead expenses that reduce business profitability such as insurance costs as well as payroll and benefit administration expenses.
#2: Improvement by Addition
Examples include:
- Hiring new key employees to lead the business into its next phase of growth and remove dependence on the current owners.
- Implementing strategic new marketing initiatives to attract new customers and improving corporate communication to cultivate a strong company culture.
Let’s look more closely at how you can employ marginal gains:
Financial and Operational Improvements
Financial Strategies
- Cost Optimization: Incrementally reduce unnecessary expenses and streamline operations to demonstrate a lean and profitable business model.
- Investment in Profitable Ventures: Identify and invest in areas that promise high returns, strategically increasing the overall business value.
Operational Efficiencies
- Bolster Scalability: Implement scalable systems that can accommodate increased demand, showcasing the business’s potential for growth.
- Reducing Owner Dependency: Gradually delegate responsibilities and implement systems that minimize the owner's operational involvement.
Stakeholder Relationship Building
Client and Supplier Relations
- Client Retention: Enhance customer satisfaction through incremental improvements in service quality and communication.
- Strategic Supplier Partnerships: Cultivate strong relationships with suppliers, ensuring reliability and favorable terms.
Employee Development and Retention
- Leadership Succession Planning: Identify and nurture talent to ensure a smooth transition.
- Employee Training Programs: Invest in training programs that enhance the skills of your workforce, contributing to increased operational efficiency.
The Ripple Effect on Business Value
Recognizing the interconnected nature of financial, operational, and stakeholder aspects, marginal gains can significantly elevate a business’s value. Each incremental improvement contributes to a stronger and more resilient business, making it a more appealing prospect for potential buyers or internal successors.
Embrace the Marginal Gains mindset – seize the opportunity to strategically enhance your business’s value as you plan for a successful exit. The cumulative effect of these small improvements can be the key to unlocking exponential growth and profitability and thereby net proceeds for the existing owners. Remember, when owners sell they receive a multiple of profits so every additional dollar of profit equates to multiple additional dollars of business value.
Check out our new business owner guide: Maximizing the Value of Your Business - Getting the Most You Can from the Sale of Your Business and discover what incremental gains you should make to optimize your business value. Download your copy today.
