Boards: How Much Value is Your Tech Bleeding?
In today's rapidly evolving business landscape, where digital-native and AI-centered operations are becoming the norm, the traditional lens of 'IT procurement' no longer suffices. For businesses whose valuation hinges significantly on their digital maturity and AI capabilities, the approach to technology adoption is a critical determinant of their market worth. As B2B BigTech companies like Microsoft, SAP, and Salesforce increasingly become AI-native, embedding advanced AI into their core offerings, the implications for midmarket firms are profound.
The Double-Edged Sword of AI Adoption
Relying on services from AI-native BigTech firms without adding unique value means your business is likely to miss out on creating the outsized incremental value essential for a competitive valuation. While leveraging these advanced technologies is indispensable, it's crucial that your integration transcends mere consumption. Otherwise, you risk your business model becoming indistinguishable from countless others in the market, thereby diluting your valuation.
Conversely, if your strategy involves bundling capabilities from various startups or accessing services via APIs, you must carefully assess the risks. This approach exposes your value chain to potential commoditization, intellectual property (IP) leakage, and the danger of lock-in. For a midmarket firm lacking the R&D capabilities and capital of larger BigTech entities, these technology procurement decisions are more than operational necessities; they are strategic imperatives.
Navigating the Value Stack: Key Strategic Considerations
Value Stack Analysis: Understanding the entire value stack, both horizontally and vertically, is essential. This analysis helps identify where value is created and where it may be leaking. It's about discerning how each layer of technology contributes to or detracts from the overall business value.
Control and Influence: Determining who controls what part of the value stack is critical. In an ecosystem where dependencies on external technologies are high, your firm's ability to influence these technologies becomes a vital factor in safeguarding your competitive edge.
Unfair Advantage: Identifying what gives your business a unique and unfair competitive advantage within this value stack is crucial. It’s about pinpointing the proprietary elements, exclusive partnerships, or innovative approaches that distinguish your firm from competitors and elevate your valuation.
Strategic Clarity and Commercial Rigor: The Path to Enhanced Valuation
To achieve a valuation akin to SaaS businesses, which have enjoyed ~12-30X ARR in bullish markets, it's imperative to view AI, digital technologies, and technology-enabled innovation through a comprehensive strategic lens. The opportunity cost of neglecting this perspective can be staggeringly high, potentially amounting to millions in lost valuation.
In conclusion, for midmarket firms navigating the complexities of a digital and AI-centric world, the key to unlocking superior valuation lies in strategic clarity, commercial rigor, and an in-depth understanding of the technology landscape. By embedding these principles into your approach to technology procurement and integration, you ensure that your business not only survives but thrives in the competitive market, securing a valuation that reflects its true potential.
