Every year, the largest brand consultancies in the world publish brand values for the largest companies in the world. But, it’s difficult to find studies about the small and midsized (SMB) companies which account for half of the private sector output and employment.
This lack of data gives the CEOs of smaller organizations an impression that brand is solely for the Global 1000. As a result, most SMB leaders only think about brand three times during the life of the organization: When they start up, when they get tired of the logo, and when they sell the business. But, if they knew the daily impact brand has on business success, they would surely take a different approach.
The brand value opportunity
Company value is divided into two categories: Tangible and intangible. Tangible assets are the most obvious including real estate, inventory, booked sales and other assets companies continuously monitor and manage. Intangible assets are more elusive. They include trademarks, patents, proprietary processes, specialized knowledge, and the brand.
A company looking to increase value often overlooks the intangibles, but they have a significant upside. According to David Haugh, CEO and Founder of Brand Finance, up to 75 percent of a company’s value can lie in intangible assets. For a business-to-business company, that number can be in the 30 to 35 percent range for a strong brand.
That’s significant when it’s time to attract investors or a buyer, but that’s not the whole story. Leveraging intangible assets to build value also improves business results as the company grows.
Three financial benefits of a strong brand
While good studies and surveys for the SMB market can be hard to find, several consulting organizations like McKinsey & Company occasionally conduct research about the role of brand for smaller companies. The data points that executives find most compelling are the following:
Sales: A McKinsey & Company B2B branding survey concluded decision makers consider the brand to be a central element in selecting a supplier. In fact, brand ranks slightly higher than the performance of the sales team.
Earnings: McKinsey also examined the correlation of brand strength and financial performance in B2B companies – and found it to be statistically significant. Companies with brands that are perceived as strong outperform weak brands by 20 percent in EBIT margin.
Total Value: A study published in the Journal of Marketing surveyed the financial value of brands in mergers and acquisitions. It concluded that, on average, the magnitude of a target firm’s brand value accounts for 7.3% of the transaction value.
Assessing SMB brand performance
So how does an SMB company know if the brand is yielding any of these benefits? The large global companies use rigorous models to measure and monitor the contributions of their brands to the business, but a smaller company does not always have the resources – or the need, really – to invest that heavily in an assessment process.
The answer is to keep it simple. Start by learning what factors are important when investing in the brand, measuring your brand equity regularly, and connecting brand measures to business performance. You can use a combination of intuition, experience and available data to evaluate how your company is doing and identify areas for improvement. You can add rigor in the areas that need validation or where you are not comfortable you have the right answers to improve your measurement over time. The most important thing is to start managing your intangibles now so you enjoy the benefits later.
Free eBook: Brand Value in Small and Midsized Organizations
To help SMB companies with the process of assessing their brand, I’ve written an eBook that provides an overview of:
The role intangible assets play in creating company value
The benefits of building a strong brand in an SMB company
The three elements of assessing brand value and the criteria used to judge company performance in each
My hope is leaders of growing companies will integrate these concepts into their strategic planning to achieve better short and long-term business results – and prove brand value is not only for the few.
To download the eBook, go here.