Founders and management teams are turning to AI integrations to boost valuations before selling their businesses. This piece explores how to get it right.
In this series for Talent4 I’ve been exploring recent trends in AI usage by senior management teams. It’s a truly confusing era for strategic decision making, especially for business leaders nearing a sale.
You could call this a hot topic. Last month, wool sneaker manufacturer Allbirds demonstrated how AI can impact a valuation, making an abrupt pivot to being a GPU leasing business and rebranding itself to NewBird AI. The outcome? Its stock jumped by almost 600%* in a single session.
While this article will focus on more conventional AI integrations, the bond between AI positioning and valuation should be explored. No hopeful founder or shareholder would want to miss out on a perceived AI goldrush.
To better understand the situation, I met with Juliette Otterburn Hall, managing partner at Value Squared, an independent firm that works with organisations to unlock and align the strategic levers that underpin long term value creation, performance and valuation. Having advised companies across multiple sectors and verticals, including AI businesses, Otterburn Hall has developed a keen eye for the various ways that companies can become more attractive to investors.
[*20 days on from this April 15th valuation, the stock has retreated considerably. Nevertheless, as of May 6th it is still 135% more valuable than the pre-pivot price]
Growth First, Cost Cutting Second
The first piece of advice she provides is an eye opener. A common expectation for AI integrations is that emphasis is placed upon efficiency, cost cutting, and maybe even redundancies. Otterburn Hall cautions against this instinct.
“Driving everything to the bottom and being efficiency mad is not really helping anyone,” she says. “It’s about more creativity, more innovation, rather than the lowest common denominator.”
Besides being refreshingly human, this approach seems logical. AI can help scale operations, boost creative ideation and output, and also codify knowledge. To pick out just one example, the ability to transcribe previous conversations with clients and resurface them ahead of meetings can be useful for meeting a client or customer’s needs, and maintaining or increasing their loyalty.
In short, there’s a strong argument for looking at AI from a perspective of growth and value creation, rather than prioritising leaner operations.
AI and Originality
Otterburn Hall also advises against being over reliant on AI from an identity viewpoint. If we’re all using the same tools, there’s a risk that companies become indistinguishable from each other. Investors may assume that a business lacks distinction if proposals, slide decks and other marketing materials resemble others that they’ve seen before.
Using AI, especially when many organisations are using the same popular wrappers, also brings the ‘defensible moat’ into focus. If a company has true and lasting value, this value will sit within the proprietary knowledge and workflows that others can’t access or effectively mimic. Claiming to be an AI company, or placing an AI wrapper on an existing product, is not going to be enough.
“Investors want to see AI embedded in core workflows, and a clear shift in the unit economics of a company,” says Otterburn Hall.
Culture and Leadership
The cultural impact of AI integrations is often overlooked too. This starts at the top, and leaders need to be confident in what they’re implementing. “A reason that AI fails, and AI strategies fail, is because some CEOs don’t fully understand and they’re often too frightened to ask the questions, because they don’t want to be seen to be ignorant,” she adds.
Besides focusing on their working knowledge of AI, leaders also need to make sure that their teams are adequately prepared for an AI transformation. Otterburn Hall urges business leaders to listen to the thoughts and needs of their teams and wider organisation, to better understand their priorities and abilities. This feedback should be reflected in the eventual strategy.
“In theory, we should be bringing people on a very positive journey that’s much more uplifting than the message that’s currently being sent out there.”
A Checklist for Getting it Right:
So how should you approach AI to genuinely add pre-exit value to your business? Otterburn Hall offers the following advice:
- Start with a business audit: Map your intellectual property, knowledge, skills and processes.
- Define your vision and narrative: Align on your mission and plan, and then create an AI strategy.
- Embed AI into your main workflows: And let investors see that you’ve done this.
- Build and create IP that’s not dependent on your LLM: This IP will hold value regardless of whichever model it interacts with.
- If you’re a leader, engage honestly with AI: Don’t pretend to know more than you do.
- Make your team’s journey a positive one: Listen to them and understand their perspective.
- Don’t rush to cut entry level roles: This will limit your talent pipeline and your business will bleed institutional knowledge.
- Stay human: Your voice and personality are part of your value. They are an important part of your ‘moat’.
Be Human, Be Positive
From speaking to Otterburn Hall, what really stands out is the importance of using AI without letting it be all consuming. Your business value can be enhanced by AI, but the true value within it will typically sit outside of AI. It is a value amplifier, rather than the primary reason why your business is valuable.
If you’re using AI to add value pre-exit, keep sight of the things that make your business unique. If you’re in leadership, confront your challenges honestly. Don’t ‘do AI’ for the sake of it, and make the journey manageable for your team. Getting these things right could add millions to the value of your company.
