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Why More Money Doesn’t Always Mean Better Business

“Bigger revenues always equate to better business performance.”

In this article, we’re going to show you why making MORE money could actually be WORSE for your business.

We often see companies chasing high revenues with minimal profit.

But If you’re here and you want to build enterprise value, you’re in the right place.

Enterprise value doesn’t just come from the profit or growth of a business but from the certainty of runway.

It’s less about profit and more about whether the business can survive without you.

People pay a premium for certainty, and that’s why future cash flows are discounted because they may never happen.

If your business has a low certainty factor, you can’t sell it.

This post is going to teach you how we build businesses to address three concentration risk mistakes that choke the value of your business.

Mistake #1: Platform Concentration Risk

Platform concentration risk can be a silent business killer, and we cannot overstate the importance of diversification.

Imagine relying solely on a single platform like Facebook for your customer acquisition and then, in a heartbeat, everything crumbles because the platform makes a small tweak. It’s a surefire recipe for disaster.

To navigate this peril, we need to diversify our approach by engaging with our audiences across various platforms.

Don’t pigeonhole your brand into one platform; instead, be present wherever your audience resides.

You’re reading this blog, so we’ll continue to show up here. If you’re catching us on YouTube, we’ll continue to show up there. You get the picture. By the way, here’s our CEO Taylor Welch’s YouTube video going deep on this very topic.

It’s about becoming platform-agnostic, ensuring your brand’s multi-channel presence, which not only mitigates platform risk but also enhances your enterprise’s overall value.

We don’t like more than 50% as a general rule to be coming from one platform; otherwise, we have platform concentration risk.

Mistake #2: Product Concentration Risk

Product concentration is a risky proposition for a buyer. Why?

When you look at Apple or Tesla or some of the companies that are wildly successful and they have positive growth rates year after year, after year, it’s because they launch new products regularly.

Apple has multiple iPhones, the MacBook, the Apple TV, displays, AirPods, AirPods Pro, etc..

They’re properly diversified across a suite of products that act as a diversification boat so that no matter what, they’re going to have a positive sum total.

Now, not every year is one product going to be positive, 20, 30, 50% growth after growth. But if you look at the whole portfolio, it’s going to grow.

So, you want to diversify your product, because if anything happens in the market, your business is not protected.

Diversifying your product is like having a safety net – when one product stumbles, the others keep the business going.

Mistake #3: Key Man Concentration Risk

The third type of concentration risk is a big one: key man concentration risk.

This is where you have too much responsibility flowing into one leader or one person.

If you have one player who’s responsible for 9 million dollars a year of income, or if you have one designer who’s responsible for a billion-dollar product line, then your business has a serious threat.

The only way to deal with that is to either diversify around that person, or you can literally put key man insurance on that person.

To give you a quick story, there were four or five leaders at a previous company we ran that had key man policies on them. But the problem with key man insurance is they have to die for you to capture the policy.

And so unless you’re wanting to kill your leaders, that’s a problem because if they quit or they leave, it’s like you don’t actually protect the company.

So what’s better than key man insurance or key man risk policies is actually just building the business structurally so you have a culture of duplication.

A culture of duplication where one leader turns into two leaders, turns into four leaders, turns into eight leaders, turns into 16, and so on and so forth.

When you look at the bigger companies that are doing significantly better than the alternatives, most of the big successful brands that have been around for a long time, they’re just filled with leaders that duplicate themselves, and the decision-making can be passed down rank and file down to the lowest level because their culture tolerates and actually rewards creating other leaders.

So, you’ve got to fix this key man risk.

All in All

In a nutshell, while it’s great to chase growth and revenue, don’t overlook the importance of enterprise value.

Think about these three concentration risks – platform, product, and key man risk – and address them head-on.

Not only will you fortify your business, but you’ll also make it more appealing to potential buyers.

Think of it as future-proofing your business and ensuring long-term success.

Keep rocking the business world,

-The Wealthy Consultant

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