When assessing the value of a company, an investor or valuation expert is going to look at more than just the company’s revenue, debt, and cash-on-hand. They’ll also look at its assets, including digital assets. And with the overwhelming digitization across all industries, a company’s intangible assets (such as software and data) now frequently outweigh its tangible assets.
Besides it being our business, why are we specifically talking about custom software? Yes, off-the-shelf software can increase your company’s value, as well, if it makes your company more competitive, more efficient and saves you money.
But rarely does a company own this software outright. By owning custom software, not only is it an asset that can be considered in the valuation process, but it’s also a tool you are free to adapt. And we’ll look at ways that this adaptive nature can add value to your company. If you do everything more efficiently than your competitors because you have great technology, then you’re more valuable than them.
Above and beyond the obvious benefits, in this piece, we’ll dig into four different ways in which custom software can increase the enterprise value of your company.
1. Add Meaningful Data Around Customers, Revenue, or Equipment
In the bankruptcy case of Caesars Entertainment Corp, creditors argued that the company’s Total Rewards Program data was worth $1 billion. That’s $1 billion for pure data.
Back in 2017, Gartner predicted that companies will be valued on their information portfolios by 2022. Perhaps this isn’t happening quite as quickly as Gartner imagined, but we do see this coming true.
Because more and more, we’re coming to realize the value of data. And there are (at least) two kinds of value: internal and sellable.
Internally, data’s value comes from its cost-saving or revenue-building capabilities. Data can be used to strengthen operations, make better, informed business decisions, understand your company’s capabilities, etc.
For industrial manufacturers, do you know the capacity of your equipment and your average monthly usage rate? For healthcare organizations, do you know your average monthly or annual visits, incidents of falls, or bed vacancies?
Here’s one place in which custom software can provide a competitive advantage. It’s easier with custom software to create new data streams that your competitors don’t have.
As we saw in the Caesar’s Entertainment Corp bankruptcy case, some companies also produce sellable data. The MIT Sloan article also looked at Microsoft’s acquisition of LinkedIn Corp for $26.2 billion. Authors James Short and Steve Todd questioned: “How much of the price paid was for LinkedIn’s user data — as opposed to its other assets?” They don’t know, in part because there’s currently no standard way to measure the value of data, but investors are certainly willing to pay top dollar for it (and creditors are willing to ask top dollar for it, as well).
The point here is that it’s worthwhile to take a look at the data your company is currently producing or is capable of producing and not discount its value, whether that’s sellable value or the ability to make your business more profitable.
And if the software you’re using to run operations isn’t capable of producing advanced analytics, it’s time to invest in something that is.
2. Increase Your Customer Value and Add New Revenue
Software can become another revenue stream. If you have a system integrated into your goods or services that people are paying for, that is an asset that has monetary value. Or investing in this sort of system can add new value to your company and, of course, add new value to your existing customers.
A post from McKinsey called attention to an industrial equipment manufacturer that developed a data-driven service to collect soil samples and analyze weather patterns for farmers — a new business model that provides new revenue for the company. They’ve also integrated new technology into their traditional products through “sensors in tractors and other machinery [that] provide data for predictive maintenance, automated sprinkler systems synchronize with weather data, and an open-software platform lets third parties build new service apps.”
Another example is Under Armour’s acquisition of the MapMyFitness technology company, marking the manufacturer’s place in the digital technology arena.
When software directly adds revenue, it becomes a sellable asset. And software = big money.
Why are SaaS companies worth so much money when they have no tangible assets? The average multiple for public SaaS companies is around 9x, way higher than, say, most manufacturing industries (around 5x). (Every dollar you invest in software has the potential of creating $9 in value, versus spending a dollar on a piece of manufacturing equipment and having it create $5 in value.)
3. It Allows for New Market Expansion Possibilities
Custom software can become a platform off of which a company can evolve quickly. It can allow things like:
- Assessing the value of new products, services, or markets
- Make operational changes more quickly and evaluate their success
- Platform to support changing or additional business models
What it comes down to is when you own a piece of software, you can manipulate it more easily to work for your evolving business. And hopefully, you’ve invested in a data-rich product that makes you more knowledgeable about your company.
We’d be remiss not to add that digital transformation is forcing all traditional industries to consider new business models in order to stay competitive, whether it’s through customer-based subscription services, customer experience add-ons like mobile apps and customer dashboards, or internal digital advances.
4. It Increases Brand Perception (Perceived Future Value)
Investors are more interested in innovative up-and-comers. All of the use cases we’ve gone into, such as creating and utilizing rich data, creating outwardly-focused software, using software to evolve your business models and enter new markets — when paired with great marketing, all of these can increase your brand perception and position you as an innovator in your industry.
Digital disruption is forcing all major companies to be more innovative in order to stay relevant. As an example, look at the insurance industry. With more insurtech companies changing how customers shop for insurance plans, major insurance firms have been forced to change their business models to keep up. Some have fared better than others, like Progressive.
Back in 2000, Glenn Renwick, the head of IT became CEO and led Progressive in a new innovative direction. Renwick focused on technology that improved the customer experience, improved their operations and marketing, and introduced new insurance options to customers. The result was a 2x increase in market value during his time in leadership.
With rapidly changing business environment, modern investors care more about brand perception, innovation, data, intangible assets than ever before. You need solid R&D and competitive software platform to help you evolve rapidly and stay lucrative.
How We Can Help
At Unstoppable Software, we create long-term relationships with companies by offering a mix of services including custom software development, monthly maintenance contracts, and consulting services. Our goal is to support your teams by filling in the gaps of your in-house expertise and possible workloads. If a job is too complicated to develop in-house, we can help. If you’re looking to free up your developers’ time, we can help with mundane maintenance tasks, as well. Learn more about our three core services:
