Phil Adams, GCA Altium

SME leaders should be using data to find out everything they can about their customers, says Phil Adams, CEO of GCA Altium. Doing this will not only attract investors, it will also maximise the value of their business.

He says: “The best businesses use their own data to understand their customer base and demonstrate how they are growing, why they are growing, and where they are going over the next year or two. It can be very powerful.”

Phil says analysing the data created by sales can enable a business to understand a huge amount about their operations, including who is buying their products, what they are buying, when they are buying them and how often they are buying them. Knowing that kind of information makes it far easier to attract an investor.

He adds: “If an investor is looking at a business, they want to know that management really understands its customer base and its market. Does the business know its average order value, is it able to map out how often its customers buy from it? Does it have the data to understand why it is successful? Because that is the bit investors buy into.”

Indeed Phil says knowing the details of the sales a business is making can be even more important than simply increasing the amount of sales being made. “A business might have grown sales but it might not have the level of quality and sophistication needed in terms of looking at the data - and the quality of the data is the bit that makes the difference. We see a massive disparity between companies that can provide data at the drop of a hat, and those that just don’t understand their data and need it constructing for them.”

What makes a business most attractive to investors, he says, is evidence of customers who buy from it again and again. “The holy grail is repeat customers. Whether they are big or small, there is a far higher value placed on businesses that can demonstrate repeatable, recurring revenue - particularly recurring contractual revenue - than on businesses that are seen as having one-off or volatile revenue.”

Indeed he says for some businesses, moving customers onto a subscription model which provides repeat contractual revenue rather than one-off ad hoc purchases will increase the value of the business even if it causes a fall in total sales.

He says: “The harder it is for your customer to dislodge you, the higher the quality of your business you have.”

Phil says Pret a Manger’s launch of its £20 a month coffee card is a good example of a business that is trying to create a subscription model in order to turn one-off purchases into stable recurring revenue.

He says it is vital for SMEs to invest in scalable technology that will be able to provide the data the business needs as it grows.

He says: “Investors are looking for that ability to scale. Sometimes businesses can get to £5-10 million turnover but they can’t get to the next stage, either because they haven’t got the infrastructure or because what they are doing is specific to a local geography.”

Businesses should also use data analysis to avoid being too dependent on one or two large customers for their sales, he says.

“When you are trying to raise investment it is a big risk if you are heavily dependent on one single customer, because if that customer pulls out, you no longer have a sustainable business.”

He says taking these steps will more than pay off. “If a business can broaden its customer base and get a lot of repeat contractual revenue, it will dramatically increase the value of the business without necessarily dramatically increasing its revenue.”