How to Accelerate Valuation Growth in Services Businesses

Private Equity firms that own professional services businesses have a challenge with growing valuations. In a services-based business it is hard to increase revenue without increasing headcount. Margins shrink as hiring, training, and retaining talent becomes progressively more difficult. Meanwhile, all of the company’s intellectual property is locked in the heads of employees, meaning that when the employees leave the building, so do the company’s assets. These factors keep exit multiples for service businesses low, often ten times lower than comparably-sized software companies.

Digital Transformation allows you to increase exit multiples.

  • Launch customer-facing products that grow revenue and margins
    • Create a premium product that increases the value of core services
    • Offer new value to remain competitive or even leap ahead of competitors
    • Generate high-margin revenue with exit multiples ten times higher than service revenue
  • Digitally enable employees to increase productivity and performance 
    • Embed the employees’ expertise in applications to ensure continuity
    • Make repetitive tasks faster and more accurate
    • Standardize and facilitate processes

But how? Some companies create innovation divisions… only to discover that the high-risk approach needed there is incompatible with the company’s failure-averse culture. Other companies buy into an enterprise platform just to learn they are costly, take years to generate results, and disrupt the core business.

The right answer for most services businesses is targeted digital solutions that solve pressing problems now. This approach lets you get wins on the board quickly, building momentum to effect larger and larger culture change to facilitate ever greater innovation & impact.

If you or someone you know is struggling with these issues, PixelEdge can help. Learn more.

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