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Demystifying ETS valuations Part 9: Badges and Accolades

Picture of Ali Hussain

We have already discussed the criticality of Revenue and Revenue Growth. They are primary drivers of Enterprise Value in ETS businesses. However, both require the one magic word: Sales. One of the challenges in selling services is the lack of tangibility. Besides finding the right expertise and price points, customers also look for credibility before they move forward. Since there is typically no product demo, ETS firms rely on other sources to gain credibility. Some common sources include: referrals from common connections, references from past customers, and badges and accolades. While the first two sources are limited to one's network or existing customer base, badges and accolades are a more scalable source of credibility. For example, a services company that becomes an AWS Premier Consulting Partner will be considered more credible in most cases compared to a company that may have the same experience but has no vetted credentials.

The benefits of having such a badge is two fold: it gains extra eyeballs from any website that lists such premier partners, and further checks more boxes in the vendor selection process for a customer – thus more leads and a higher close rate. While this is never a solo decision criteria, it can help in growing revenue.

For similar reasons, these badges, often awarded through independent audits/vetting, also increase the interest of investors and acquirers in the ETS firm. For financial and strategic buyers, it gives them instant confidence that they are dealing with a strong prospect. In fact, for strategic acquirers, beyond just the credibility, there is a second reason sometimes: they see the acquisition as an opportunity to acquire a badge they desire but have not yet achieved. As the laws of demand-and-supply dictate, if you have a badge that some strategics desire, you have more interest, and thus have a higher valuation.

Key Valuation Drivers for ETS companiesValuation Drivers

As said before, a focus on building a strong ETS brand is rewarded both by the customers of the services and the investors/acquirers. A focus on building a strong brand is thus a high ROI exercise. Since ETS companies, by definition, play in certain ecosystems, the most logical action is to be aware of the kind of badges typically awarded in the relevant ecosystem. For example, in the AWS ecosystem, Partnership tiers, competencies, and services delivery partnerships with AWS are all rewarded. Next step is to understand the requirements of each ecosystem and create realistic goals to achieve certain badges within a timeframe. Create sub-tasks for what is required to get there, and lastly, make a strong marketing plan to create the noise when you do achieve such a badge. Make sure you update all of your marketing collateral and even send newsletters to your existing customers and network letting them know of this update. It is an opportunity to get in front of people again.

A word of caution: while such badges and accolades are valuable, it is also the case that there is too much you can get and most of them do not really help your sales or valuation. Thus, with any other activity, staying focused and picking your battles wisely is important. These choices you make are the most important part of your strategy. In the words of Sun Tzu:

Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory. - Art Of War, Sun Tzu

For a tech services company developing a winning strategy is about developing the right positioning. To develop the right positioning for your company please check out our whitepaper, "3 Reasons Why Growth of Your Technology Services Startup Is Slow."

The other articles in our "Demystifying ETS Valuations" series are: