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Value Creation Compass
Executive teams need to think critically about how their business will create enterprise value. At times this is driven by circumstance – how market conditions are driving growth and profit. Ideally it is a strategic decision – an opportunity to evaluate the market potential and strategic opportunities ahead of you, and put the right initiatives in place to capture them.
SBI’s Value Creation Compass (VCC) provides a framework for establishing your value creation strategy, and the growth levers that will get you there.
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Value Creation Dimensions
Value creation is a function of two dimensions of business performance – your rate of growth and your rate of investment. Those represent the central axes in the Value Creation Compass.
It begins with the rate of growth – the vertical axis. What matters here is whether the growth rate is accelerating or decelerating, and how that reflects increasing economic value for the firm.
Next is the rate of investment in the business – the horizontal axis. Here we consider not only whether operational expense is increasing or decreasing, but more broadly whether the rate of investment in the business is changing, including M&A, other capital expenditures, and any below-the-line investments.
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Quadrant 1
Accelerating Rate of Growth While Slowing Investment
Companies in this quadrant have commercial spend levels commensurate with peer benchmarks; however, the business is not growing at the expected rate given those investments, necessitating productivity gains.
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Quadrant 2
Accelerating Rate of Growth and Investment
This is an “art of the possible” thesis for high-growth companies focused on extracting breakout growth with increased investments in commercial functions.
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Quadrant 3
Converting to a More Valuable Revenue Stream and Model
Often a use case for shifting the revenue model dramatically (e.g., on-prem to SaaS conversions), these companies focus on making a step-change in their revenue model to drive future growth and enterprise value creation.
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Quadrant 4
Maintaining Growth Rate While Slowing Investment
Often seen in scenarios where a public company is taken private, this quadrant describes businesses that are achieving substandard growth rates, and tightly managing investments in order to continue to deliver value even as growth rates slow.
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1 Improve GTM efficiency
Refine target markets, ICP, and coverage models and/or drive commercial effectiveness improvments.
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2 Increase Customer Retention
Manage against growth rate deterioration by customer churn.
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3 Exercise Pricing and Packaging Leverage
Get more out of the same by aligning product and pricing to customer willingnewss-to-pay
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4 Develop and Launch New Products
Bring new revenue streams to market to capture new demand and bolster existing product lines.
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5 Enter and/or Expand into New Markets
Pursue new industriesm, geographies, or other customer segments, including through acquisition.
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6 Redesign the GTM Model
Establish new GTM channels, roles and/or motions for new market, product and/or revenue model success
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7 Evolve the Service Delivery Model to Increase Gross Profit
Reduce cost-to-serve through, e.g., new staffing approaches ot digital delivery models that capture more profit from existing revenue sources.
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8 Shift Revenue Model to capture Creater ACV and CLTV
Transition o a subscription-based revenuew model or pursue additional productization.
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9 Bolster Profitability of Low Margin Customers/Segmnents
Generate more revenue from and/or their service levels to create more hight-value customers.
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10 Drive Revenue in Most Cost-Efficient Channels
Strategically allocate customers across a variety of channesl, including partnership and targeted GTM role re-design.
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11 Reduce Acquisition Cost to Lower GTM Expense
Rethink targeting, pipeline development and conversions approaches to bring more customers in at the same cost.
