Definition
Value drivers are the structural features of your business that increase what a buyer is willing to pay relative to your earnings. They don't show up directly on a financial statement, but they show up powerfully in the multiple. Recurring revenue is a value driver. So is a documented operating system, a strong second-in-command, customer diversification, defensible margins, brand recognition, contractual customer relationships, and a clear growth narrative. Two businesses with identical earnings can sell at very different multiples — sometimes a 50%–100% spread — based entirely on which value drivers each one has built. The earnings number sets the floor of what your business is worth. Value drivers determine the ceiling.
What it means for you
Two businesses with identical earnings can sell at very different multiples — sometimes a 50%–100% spread — based on which value drivers each one has built. The earnings number sets the floor. Value drivers determine the ceiling.
The buyer’s lens
Buyers don't pay for what your business has earned — they pay for what they can predict your business will continue to earn under their ownership.