What is Talent Strategy? The term seems to mean different things to many different people.
On one hand, the meaning is fairly intuitive. Let’s build a strategy for our talent like we do for our business. On the other hand, it can be endlessly complicated by cultural dynamics, budgets, growth projections, social inflection points, market shifts, and just good old-fashioned prioritization. In my experience, when small to mid-sized, privately held companies consider talent strategy, they think of it as a nice-to-have, but there are other priorities to focus on. Usually, these priorities revolve around short-term pain points rather than more strategic issues like “building business value.”
But what if I told you talent strategy equals business value?
In my role as Sales and Marketing Director for a Talent Strategy Firm working with small to mid-sized businesses, I have seen many success stories of companies implementing and practicing talent strategy to increase their business value.
A quick Google search for “value levers in a business” will tell you there are many. Financial and operational levers like margin improvement, revenue growth, asset utilization, cash conversion; plus, strategic and market levers such as customer retention, differentiated offerings, and recurring revenue mix. Finally, there are structural and organizational levers, which include governance, risk, compliance, data and technology, and minimizing key person dependency.
For a majority of small to mid-sized businesses, minimizing key person dependency is a chief pain point, and one that leads directly to the importance of having a talent strategy.
McKinsey reported in 2021 that companies with highly collaborative executive teams achieved 30% higher revenue growth and 20% greater profitability. There are also investor perception and valuation premiums to consider. 80% of financial analysts say they would award a valuation premium for an effective senior leadership team and discount companies with weak leadership. ScienceDirect says an increase in managerial capability directly generates a 5.7% increase in company value.
On the other side, a founder-dependent leadership structure has a 19.8% decreased average valuation.
In addition to the benefits mentioned previously, a strong leadership team and an institutionalized talent strategy act as direct accelerators for multiple expansion. Instead of just increasing underlying earnings (EBITDA), these components lower buyer risk and prove scalability, which increases the valuation multiple itself. According to mid-market transaction data, companies with deep leadership benches and formal talent strategies frequently command multiples 1x to 4x higher than competitors with owner-dependent structures or high personnel turnover (especially in the leadership or executive ranks).
With the evidence mounting and true leadership talent hard to find, it’s no wonder that many businesses struggle to formalize and implement a talent strategy that builds business value. The truth is that your talent is a force multiplier for all other metrics tied to your business value. If you don’t have a talent strategy, whether you are preparing for a transaction or looking to continue to grow your business, you are leaving money on the table.
Strategic Talent Partners helps companies connect their business strategy to a talent strategy that ensures the company continues to grow sustainably and build value. We love talking with business leaders and solving talent problems. Reach out to us to have a conversation.
