Blue sky value, also known as goodwill value, is the intangible value that a business possesses over and above its tangible assets. It is the value that is created by factors such as brand recognition, customer loyalty, and intellectual property. In essence, it is the value that is not accounted for on a balance sheet, but that is still critical to a business’s success.
Understanding blue sky value is important because it can significantly impact a business’s valuation. When a business is sold, for example, the price paid is often based on a multiple of the business’s earnings. However, if the business has a strong blue sky value, this multiple can be higher, resulting in a higher sale price.
So how can we improve blue sky value? The key is to understand the value drivers and how they can be leveraged to enhance blue sky value.
Value Drivers
Value drivers are the factors that contribute to a business’s value. There are several key value drivers that are particularly relevant to blue sky value:
1. Brand Recognition: A strong brand can provide a business with a significant competitive advantage. Customers are often willing to pay a premium for products or services from a brand that they trust.
2. Intellectual Property: Intellectual property, such as patents, trademarks, and copyrights, can provide a business with a legal monopoly over its products or services. This can be a significant source of value.
3. Customer Loyalty: Customers who are loyal to a business are more likely to continue buying its products or services, even if competitors offer similar options. This can provide a business with a stable revenue stream and reduce the risk of losing market share.
4. Reputation: A good reputation can be a valuable asset for a business. It can attract new customers, retain existing ones, and provide a buffer in times of crisis.
Strategic Planning and Execution
Once you have identified the key value drivers for your business, the next step is to develop a strategy for leveraging them to enhance blue sky value. This requires a combination of strategic planning and execution.
Strategic Planning
Strategic planning involves setting goals and developing a roadmap for achieving them. When it comes to improving blue sky value, there are several key elements to consider:
1. Branding: Develop a strong brand that is recognizable and appealing to your target audience. This may involve investing in marketing and advertising campaigns, as well as creating a consistent visual identity across all channels.
2. Intellectual Property: Protect your intellectual property through patents, trademarks, and copyrights. This can help to prevent competitors from copying your products or services and can provide a legal monopoly over your offerings.
3. Customer Service: Focus on providing exceptional customer service that exceeds expectations. This can help to build customer loyalty and increase the likelihood of repeat business.
4. Reputation Management: Monitor your online reputation and take steps to address any negative reviews or comments. This can help to maintain a positive reputation and enhance brand recognition.
Execution
Execution is the process of implementing your strategic plan. This requires a focus on the following areas:
1. Consistency: Ensure that all aspects of your business, from customer service to marketing to product development, are consistent with your brand identity and value proposition.
2. Quality: Deliver high-quality products or services that meet or exceed customer expectations. This can help to build customer loyalty and enhance your reputation.
3. Innovation: Continuously innovate to stay ahead of the competition and provide new value to your customers. This may involve investing in research and development or exploring new markets or product categories.
4. Metrics: Track and measure your progress against your strategic goals. This can help you to identify areas for improvement and ensure that you are on track to achieve your objectives.
Real-World Examples
To illustrate the importance of blue sky value and how it can be improved, let’s look at a few real-world examples:
1. Coca-Cola: Coca-Cola is a classic example of a company with strong blue sky value. Its brand recognition is ubiquitous, and its products have a loyal following around the world. Coca-Cola has leveraged this value to expand into new markets and product categories, such as sports drinks and energy drinks.
2. Apple: Apple is another company with significant blue sky value. Its brand recognition is strong, and its intellectual property, such as its patents and trademarks, provide a legal monopoly over its products. Apple has also focused on delivering high-quality products and exceptional customer service, which has helped to build customer loyalty.
3. Amazon: Amazon has built its blue sky value through a combination of branding, innovation, and customer service. Its brand recognition is strong, and it has leveraged this to expand into new markets, such as cloud computing and streaming media. Amazon has also been innovative in its approach to product development, such as with the introduction of the Kindle e-reader. Finally, Amazon’s customer service is legendary, with features such as free two-day shipping and easy returns.
Conclusion
Blue sky value is a critical concept for business owners to understand. By identifying the key value drivers and developing a strategic plan for leveraging them, businesses can enhance their blue sky value and ultimately, drive success. Through a focus on branding, intellectual property, customer loyalty, and reputation management, businesses can build a strong foundation for growth and profitability.
