Midmarket business owners aiming to increase their companies’ enterprise value would be wise to consider their corporate culture—especially an entrepreneurial culture that champions innovation, agility, and employee engagement.

The power of culture to drive valuation is seen not only in small businesses but also in larger companies. Forbes Contributor, Benjamin Laker, noted that companies with strong cultures experience a 4x increase in revenue growth. Similarly, companies on Fortune’s annual 100 Best Companies to Work For list see significantly higher returns, with cumulative returns as high as 495% compared to 170% (Russell 3000) and 156% (S&P 500). These statistics indicate that culture can be a strategic lever for value creation across companies of all sizes.

For midmarket companies, the opportunity to increase enterprise value through culture is profound. A Fortune 500 company with tens of thousands of employees might feel like a big city, while a midmarket company with hundreds of employees often feels more like a small town. In this more intimate environment, a healthy, entrepreneurial culture has an even greater impact on valuation.

Data Supporting Culture as a Value Driver

Consider data from Columbia Business School researcher Shivaram Rajgopal:

• 91% of executives believe culture is important to their firms.

• 79% place culture among the top value drivers of their company.

• 54% of executives would walk away from an acquisition target that is a poor cultural fit.

• 33% would require discounts between 10%–30% of the purchase price of a target with a poor culture.

These findings show that company culture is a substantial value driver in the eyes of executives and investors. For midmarket business owners, nurturing an entrepreneurial culture can set their companies apart as leaders in the industry. But what exactly makes a strong company culture so impactful to valuation? Here are some of the key reasons:

1. Employee Retention and Attraction

A strong, positive culture attracts top talent and keeps them engaged and loyal. While midmarket companies may lack the expansive career advancement opportunities of larger firms, an entrepreneurial culture can be a unique differentiator that fosters employee retention. In this environment, employees often feel that their contributions matter, as they can draw a direct line between effort and results.

In an entrepreneurial culture, employees are encouraged to bring new ideas to the table, recognize the impact of their contributions, and receive regular acknowledgment for their efforts. This engagement not only strengthens loyalty but also fuels productivity and innovation. High retention reduces turnover costs, and attracting skilled employees leads to better productivity and creative output—both of which drive revenue growth and boost profitability, adding to enterprise value.

2. Innovation and Agility

An entrepreneurial culture is naturally adaptive, allowing companies to embrace change rather than resist it. In this type of culture, new ideas are not only welcomed but actively championed. Employees feel empowered to experiment, identify ways to improve processes, and even develop new products and services, making the company more agile and competitive.

This responsiveness is especially attractive to investors, as it positions the company to capitalize on emerging market opportunities while mitigating potential threats. A culture that prioritizes innovation can quickly pivot to meet changing demands and generate new revenue streams, making the business an attractive acquisition target or investment opportunity. Ultimately, this boosts enterprise value.

3. Productivity and Efficiency

An engaged workforce, driven by shared values and goals, is inherently more productive. In a healthy culture where employees care about each other and the company’s mission, team members don’t simply go through the motions—they actively contribute to achieving great outcomes. When everyone understands their role in the larger picture and shares a common purpose, it leads to greater commitment, improved efficiency, and reduced costs.

Operational efficiency, boosted by this unity of purpose, has a direct impact on cash flow, which in turn increases the company’s valuation. Investors and acquirers are often willing to pay a premium for companies where operational excellence is embedded in the culture.

4. Customer Loyalty and Brand Reputation

Companies with a culture rooted in service excellence, integrity, and customer focus often build strong customer loyalty. In an entrepreneurial culture, employees are typically motivated to go above and beyond to deliver exceptional experiences. Customers sense the authenticity of such interactions, which builds trust and loyalty over time.

This loyalty translates into recurring revenue and word-of-mouth recommendations, both of which enhance brand reputation. The stability provided by a loyal customer base not only adds to the predictability of cash flow but also increases the company’s attractiveness to investors and acquirers, raising the overall enterprise value.

5. Risk Mitigation and Compliance

Culture also influences ethical behavior and adherence to standards, which can significantly reduce regulatory, legal, and reputational risks. A company that nurtures an entrepreneurial yet integrity-focused culture often experiences fewer compliance issues, avoiding costly penalties and reputational damage.

Investors view strong ethical standards as a safeguard for value, knowing that a company with a positive culture will likely encounter fewer disruptions due to regulatory or legal issues. By minimizing these risks, companies can preserve their valuation and avoid the potential for costly value erosion.

The Takeaway: Investing in Culture for Value Creation

For midmarket business owners, investing in an entrepreneurial culture isn’t just about improving employee morale or customer satisfaction—it’s a strategic move that directly impacts enterprise value. Whether through reduced costs, improved cash flow, a strong talent pool, or increased market competitiveness, an entrepreneurial culture creates value in measurable ways. As executives increasingly recognize the critical role of culture in driving business success, companies with strong cultures will continue to stand out as valuable investments and acquisition targets in the marketplace.

Originally published on Darrell Amy's LinkedIn.