Stacy Madison didn’t set out to be a healthy snack food mogul. In fact, she didn’t set out to be in the snack food business at all. She started a humble sandwich cart business in 1997 with her partner. However, her career took off like a rocket due to an insight uncovered from paying attention to operations. As it turns out, the chips Stacy baked from excess pita and passed out for free to waiting customers became a massive hit.

In short order, Stacy’s Pita Chips was born.

One of the benefits of benchmarking your own business with Sofer Advisors are the insights gleaned. Similar to Stacy Madison, these insights can create major opportunities to transform your business in helpful ways. Just think: Stacy’s company grew from that sandwich cart to $60 million in retail sales by 2005—at which point it was acquired by PepsiCo for $243 million.

This amazing growth story is based on one single insight: customers were more excited by free pita chips they received than sandwiches they ordered. Even so, insights for creating such breakthroughs can be hard to recognize. It’s like the old adage about not being able to see the forest for the trees. In these situations, an outside perspective afforded by a business valuation can provide actionable insights otherwise unlikely to reach the surface.

Why Benchmarking is Important

When talking about the usefulness of business benchmarking, a common first reaction I get is that valuations are strictly a matter of running the numbers. This simply isn’t true at Sofer Advisors. Because our team creates valuations that are defensible, based on facts and reasonable assumptions, our work also serves as a signpost for future success.

In fact, the valuations we produce for each client contain insights transferable into action items to increase profits, lower risk and create additional value. In some cases, the insights our team uncover can truly transform a business. Yet even a modest change with an immediate positive impact can be a big win. Moreover, the insights produced often come in the form of hidden gems. These can be current areas that are underdeveloped or unutilized. Insights can also reveal hidden weaknesses—areas holding a business back.

Advantages of Benchmarking

When Sofer Advisors benchmarks a company, we delve into operations to gain perspective on every organizational aspect. This produces valuable insights as part of the final valuation. We don’t just offer a number, either. We seek to provide an explanation as to why a part of your business is valued a certain way. Often, these insights include areas that are underutilized, yet could contribute more to the bottom line. We call those hidden gems.

Hidden Gems

In Stacy’s case, the hidden gem that would transform her business was an afterthought: Extra bread she baked into chips instead of throwing away. One of the most famous examples of a hidden gem was the 3M adhesive originally discarded as a failed glue. It later became Post-It Notes, a huge moneymaker. In both cases, the discovery of a killer product can be chalked up to happy accidents. But the discovery of hidden gems in your operations can be much more methodical when spurred by a Sofer Advisors business valuation.

Here’s an example. One of our client’s primary business lines involved selling/servicing powersports equipment to Floridians seeking fun in the sun. This client had a great reputation, but they weren’t maximizing their potential. One of the insights that came out of our valuation was that the company was neglecting its parts business. (A considerable overlap exists between consumers interested in buying powersports equipment and those that can fix the machines themselves.) Accordingly, we advised the executive team they should focus on growing the parts side of their company. By expanding retail parts sales and selling outside the immediate area via a revamped website, our client quickly became more profitable and experienced higher growth.

Of course, not every actionable insight from a business valuation is about positives that deserve more attention. Sometimes the most immediate action item is a negative, one that might not even be apparent in the day-to-day management of a company. We call those hidden weaknesses.

Hidden Weaknesses

Addressing weaknesses is a core component of good management. Things can get tricky when strengths and weaknesses blur. This is the argument of Harvard Business School professor Dorothy Leonard. She believes core competencies can transform into “core rigidities”, holding a business back from being flexible and/or responsive to the current climate. In our experience as expert business valuators, the greater concern addressed by a benchmarking exercise is the tendency for weaknesses to be ignored due to the stresses of keeping the lights on and customers happy.

A recent example of uncovering hidden weakness comes from a manufacturer client. It was deeply concerned when our valuation came in lower than expected. The Sofer Advisors team explained that the valuation was impacted by significant underperformance that seemed rooted in the cash conversion cycle. Their weak cash position affected practically every other area. Yet it hadn’t been an area of focus prior to the valuation. After completing the benchmarking process, our client changed its receivables and payables processes, radically improving their cash position in 90 days. Added diligence to a business process that wasn’t an area of attention before dramatically improved the company’s value—and its prospects moving forward.

Ultimately, some businesses treat valuations as a simple exercise, to “check off a box.” That’s not at all our approach. Sofer Advisors recognizes that every valuation is a tremendous chance to gain deeper insights into an organization, both the good and the bad. To learn just how we can uncover both the hidden gems and the hidden weaknesses existing in your own business today, please contact us today for your free consultation.

David Hern is the founder and chief executive officer of Sofer Advisors, LLC focusing on business advisory services related to litigation assistance, estate and tax planning, and business enterprise valuations for various privately-held and public companies. He is a qualified financial analyst with a proven ability to simply and clearly communicate analysis to boards of directors, presidents and CEOs, CFOs, controllers and private equity portfolio managers. David has been recognized for enabling organizations to determine their enterprise and equity value for a variety of situations including strategic planning, sale or IPO, mergers and acquisitions, financial reporting (common stock, stock options grants, purchase price allocations, impairment analyses, etc.) and tax compliance (estate & gift, 409A, NUBIG). Industry experience includes, but is not limited to, professional services, business service, healthcare, information technology, financial services, and manufacturing & distribution.