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  • Writer's pictureMark Hartmann

How First Impressions Can Drive the Value of Your Business


A young man in a business shirt and tie walking alongside a smiling young woman in a casual striped tank top, who is extending her hand for a handshake, both inside a spacious, well-lit office corridor.

Customers' initial impression of your business often influences how much they decide to spend with your company. This is well known, but have you ever considered how first impressions affect how potential investors value your business?


When raising capital, investors’ initial perception of your business significantly impacts their valuation, affecting both the equity you’ll need to give up for growth and the company’s value when selling.


Take Jeremy Parker’s experience raising money for Swag.com as an example. Investors initially perceived Swag.com as a simple distributor of promotional products. Despite Parker’s efforts to position the company as more than a middleman, investors weren’t convinced. They categorized Swag.com with other promotional product companies, offering Parker a low single-digit multiple of EBITDA for a stake in his business.


Parker re-strategized, presenting Swag.com as an e-commerce platform with a memorable domain name and a world-class, elegant, direct-to-consumer buying experience. This shift in perception transformed Swag.com from a simple distributor to a technology company in investors’ eyes. As a result, Parker received an acquisition offer that valued his $30 million company at a healthy revenue multiple.


When it comes to raising funds or selling your business, optics matter significantly, and how investors categorize your business plays a crucial role.


The Alibaba Discount: Why Diversification Can Hurt Your Valuation

Speaking of being miscategorized inside investors' minds, Chinese Internet giant Alibaba recently announced its intention to split into six separate businesses. In the two weeks following the announcement, Alibaba’s market value increased by $19 billion. Why would investors welcome such a move? Alibaba consists of various businesses resembling those of Amazon.com, including e-commerce, logistics, and cloud storage. Before the announcement, Alibaba was valued at just ten times their earnings forecast for next year, yet each business as a standalone will likely fetch a much higher multiple. 


Investors often discount businesses like Alibaba, as they are compelled to purchase assets they may not be interested in. They frequently apply the lowest value multiple of a particular business to the entire group of companies. Amazon faces a similar situation. The Bloomberg Intelligence Unit estimates that Amazon’s cloud storage division, AWS, could be valued at $2–3 trillion as a standalone business. However, as a collection of various services, from e-commerce to audiobooks and cloud storage, Amazon’s entire market capitalization is less than half (around $1 trillion) of what Bloomberg analysts believe just one of its divisions could be worth as a standalone.


Focus or Diversify? Striking a Balance Between Revenue and Valuation Goals

Investors prefer businesses concentrating on dominating a single product or service rather than diversifying into various unrelated offerings. A diversified portfolio may lead investors to perceive your business as unfocused, which can result in a lower valuation. The same principle applies when you decide to sell your company. If your business appears scattered, potential acquirers may focus on your least valuable division and use that multiple to your entire organization.


Prioritizing your goals is essential: Do you aim to grow your business by increasing revenue or enhancing its value? While these objectives are related, they require different strategies. Pursue diversification if your primary goal is to boost revenue. However, if you’re striving for a more valuable company that could be sold, maintaining a clear focus is crucial.


 
Mark Hartmann - CEO of HartmannRhodes

Mark Hartmann is a three-time Inc 500|5000 CEO with a rich sales, operations, and leadership background in the insurance, financial services, and healthcare sectors. With extensive experience growing and selling his own businesses, Mark leverages his expertise to help owners grow and sell businesses valued at $1M —$25M. He’s earned a master’s degree in organizational change management from St. Elizabeth University and a graduate certificate in executive coaching from Columbia University. Mark’s professional certifications include Certified Mergers and Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).

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