Arlene Dickinson talks brand value

• Secure intellectual property.

  Ask the company’s lawyers to ensure that the firm’s logos, slogans, trademarks, and patents have been secured.

• Analyze the market.

  Regardless of the brand’s intrinsic value, sell in a rising market or after the firm has inked a series of solid contracts or deals, says Graeme Deans, a partner and consultant with Ernst & Young’s Transaction Advisory Services group. “It’s always best to sell from a position of strength.”

• Assign a dollar value

  Jim Muccilli, a partner in the Business Valuation and Litigation Support

  group with Soberman LLP, a full-service public accounting firm, says there are several models for establishing the value of the brand, but most come down to how the brand affects cash flow.

One common formula is to calculate the price difference between a branded good and a generic

equivalent, and use that premium as a way of determining how much extra cash the brand generates for the company.

For service or social media companies, the valuation process becomes more difficult because the company’s products are not tangible. In these cases, Muccilli says some other valuators might focus on calculating the additional cost to the company of building the brand. Although such methods tend to overvalue the firm, he warns.

LEVEL5 partner Brand Finance relies on using a “royalty relief” formula. According to Kincaid, LEVEL5 benchmarks “soft” assets associated with customer research and brand strategy, estimating three key market drivers: intent to purchase, relevance, and loyalty. Next, LEVEL5’s valuation process calculates the return on a firm’s hard assets. All these metrics are fed into a formula that estimates expected royalty earnings if it licensed its brand to a third party.

The valuation process can provide a glimpse of what may not be working when it comes to the crucial drivers of brand value. “If you’re failing in one of those areas, you know what you need to do to pull up your socks,” says Kincaid. “At the end of the day,” adds Muccilli, “for a brand to have value, a branded product or service must generate or have the potential to generate more cash flow than a non-branded product or service.”

Visit capitalmagazine.ca/how-tools for Brand Finance’s tool on how to quantify your company’s brand

Beware destabilization

Despite all the careful preparation, a protracted transition can destabilize the company, especially if the owner isn’t forthright about what’s happening. Becky Reuber, a professor of entrepreneurship at the Rotman School of Management at the University of Toronto, warns rumours can inflict tremendous damage to a small firm’s brand, especially if they prompt valuable managers to start buffing up their LinkedIn profiles. “For most companies, customers are the cash flow andyou don’t want to worry them.”

She cites one company’s approach for ensuring top managers hang around, used by The Ornamental Group, a Waterloo-based architectural mouldings firm. A decade ago, the company had almost 300 employees and a network of factories in Canada, the U.S., China, and Vietnam. But Bob and Paul Riedlinger, who earned their way into the company founded by their grandfather, were looking for new opportunities and decided to sell.

During the run-up period, Paul says, the Riedlingers bolstered their supply relationships with two major customers: Lowe’s and The Home Depot. They also got the company valued for internal purposes and then offered the senior managers a deal: if they stuck around, they would receive a share of the difference between the independent pre-sale valuation and the final purchase price. The offer worked like a charm, because it created a financial incentive for the four-member management team to not only stay, but also to add value to the firm as it sought suitors.

Competition can also cause destabilization. Take Saskatoon Funeral Home, a third-generation business owned and operated by the W.A. Edwards family. The company built by Edwards’ grandfather in 1910 and currently run by Bill Edwards, his brother David, and his sister Brenda Nissen, was in a period of flux during the early ’80s. Large multinational conglomerates began to consolidate the industry by buying up private family run businesses, eventually leaving them as the only locally owned funeral business in the market.

“It was during this time,” says Bill Edwards, “that we were also in transition mode because my father, Arnold, was nearing retirement and becoming less active in the business. I made a strategic decision to aggressively reintroduce the Edwards name as a more integral part of the brand with its obvious ‘local ownership’ differentiation. The entrenchment of this brand identity has proven very successful not only in meeting the challenge of our multinational competitors but also a number of new upstart local players.”

Transition focus

In the case of transition scenarios like Jeff Braid’s, where the business is being handed down to the next generation, brand advisors look for opportunities to sharpen the distinction between founder and the family reputation. “We put that family identity under a microscope and ask how it can be a source of value,” says Banda.

Visit capitalmagazine.ca/plus to learn how some of Canada’s best brands articulate their value.

In some cases, the family name may be synonymous with community involvement, so efforts to delineate the brand will highlight the elements that underpin the reputation. Banda cites the case of Saskatoon Funeral Home, which is well known for its philanthropic

support for community projects. As Edwards set the stage for an orderly transition to the next generation, says Banda, “That [reputation] became an important feature in its brand identity.”

“To us, Saskatoon Funeral Home is identified with betterment of our community and its people, on an economic, spiritual, and social level and involves personal volunteerism by ownership, management, and staff; financial and in-kind contributions to local projects; promotion of civic pride; and whenever possible, supporting local business,” says Edwards.

At the same time, the transition entails de-emphasizing the owner in the company’s marketing efforts, sales calls, and advertising. “Customers, suppliers, and even employees, tend to place a great deal of credibility on the ‘face’ of the company,” says Banda. To ensure a smooth transition, they have to dial down their own profile. “It’s very difficult for many of these people to step back from the spotlight.”(Learn how, see “Out of the Spotlight” below.)

Back at Braid Flooring, Jeff Braid, still president, now plays the role of the elder statesman, and has watched Christian pick up where he left off, taking on positions with the local chamber of commerce and networking with a new generation of potential customers who also want to buy their flooring from someone they know.

Indeed, eight years after he started the process of disengaging, Jeff is satisfied the family brand and the company’s reputation are fully intact, even if he’s only watching from the wings as a not-quite-ready-to-retire entrepreneur. “The work we did with branding was a huge part of this because it allowed me to slide into the background as quickly or as slowly as I wanted to.”

Out of the Spotlight

Brent Banda, president of Banda Marketing Group, suggests five considerations to address when preparing a branding strategy during a succession:

• Pick a new spokesperson, either the incoming owner or chief executive, or, as an alternative, a small group of senior managers with authority to represent the firm.
• Transfer key relationships with major customers, suppliers, and other stakeholders. “Many times a founder will serve on the board of an industry association or the local business association. The company’s new leadership must take over this responsibility and continue to build relationships in these organizations to ensure the company maintains its profile.”
• Keep the message consistent.
• Develop new approaches to promoting the business to direct attention to the company’s strengths rather than an owner’s departure.
• Ensure the outgoing owner transitions to a new type of role, such as mentoring younger managers and overseeing an advisory board.

John Lorinc is freelance journalist based in Toronto.

Photographed by Rob Waymen