How does one value a start-up company?
Some do it from comps (comparable companies) and then discount for the many risks as a start-up. Some look at projected financials or maybe market share. Some calculate the amount of unpaid labor that may be required by founders and try to value the company that way. Some try a combination of all the above, or some other way.
Let’s face it, there is no proven, scientific way to value a start-up company. If you are starting a new company and need seed money, you can come up with all sorts of justifications for a valuation. In the end, however, the value is whatever point that investors are willing to give you money.
For start-ups, many of the investors are family and friends so it’s usually what the entrepreneur claims the value to be. Otherwise, investors will invest in the person — the entrepreneur. A great business plan can be never be successful if inappropriately executed by a mediocre team. An experienced entrepreneur can polish a mediocre plan into a good one, and actually execute upon it.
So, in the end, the value of a start-up is the experience and capability of the entrepreneur and his/her team.
I’ve been humbled by the interest in my new venture. Fortunately, or unfortunately, the business plan doesn’t require much cash.
My focus in talking with interested investors have been to be completely honest about the potential risks — and there are many for all start-ups. I also have been clear that the valuation is subjective and solely based upon my experience. Some advisers insinuated that maybe I was not being aggressive enough given the amount of interest. Well, another lesson I’ve learned from previous ventures is that “greed” can surely set you up for failure.
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Teamwork is vital for start-up companies
When starting a new venture, everything begins with picking the right team. That is something heavily on my mind right now as I am about to launch a new company.
In “Good to Great”, the book clearly found empirical evidence showing that the team is more important than the vision or idea. The reasoning is that a great team working together will fine tune the idea into a winning vision.
I could not agree more. I’ve learned a lot about putting teams together, having been involved in five previous startups. First, the entrepreneur must understand his or her own strengths and weaknesses. It sounds easy but experience has taught me that honest self-evaluation is not always a strength of entrepreneurs.
Once the leader’s skills are honestly assessed, the team members should augment and complement those attributes. Imagine a basketball team of just centers. Well, I’ve seen a start-up team of just programmers without any business or management experience.
I certainly want teammembers smarter than me, especially in areas of my weakness. In general, having smart people around is obviously a good thing regardless. However, chemistry is more important than individual intelligence or capabilities. An aligned, supportive team will always outperform a superstar who is not willing to work with others.
So, you think you have an amazing business idea and plan? I will guarantee one thing. Your plan will change and evolve as you test it in the market. However, the people you pick on your team will most likely be the same core people taking you through the execution of the plan.
Here are some questions to ask when assembling the team:
- Honest evaluation of each person’s skills, not just in areas of their professional domain expertise, but in people, management and sales skills.
- Is each person a team player? Do they provide positive energy or drain energy from the group?
- How would each person react to stressful situations?
- Are the individual value systems aligned?
- Are your expectations aligned with each teammembers’ expectations? Double check.
- If you have doubt, don’t include that person. Don’t talk yourself into it.
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I’ve been running around meeting different people with my new business plan. I’m pitching to experienced entrepreneurs and businessmen mainly for constructive feedback.
I work best under an iterative process, trying to refine my pitch AND plan after each presentation. Many times the oral presentations and critical exchanges really take my written thoughts to another level. It’s been an exhilarating experience as some excitingly predict the next slides, while others ask probing questions, and some add interesting perspectives to the idea.
The idea needs further refinement. However, one very encouraging sign is that my audience so far have understood the concept rather quickly. It’s simple, and that’s always been a big point when I review other people’s business plans. The barrier to entry is obvious. The revenue model is easy to understand. The competitive advantage is clear. The target market is broad.
Of course, many good and simple ideas have not succeeded to plan. But clarity and simplicity in a plan that tries to approach an obvious need in a unique manner is a good start.
(I will be sharing more of the business plan after the launch of the company – if indeed that were to happen)
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I just finished up a four-day golfing trip with “da boyz”. This is a group of pretty good golfers and heavy drinkers who plan one big such outing a year.
This year I sprained my ankle just a few days before the trip to Lake Tahoe. By the time it was time to leave, I was debating whether to bring my crutches along. Resigned to accepting just caddy duty, I went anyways to spend time with the seven other boyz. Somehow, however, I managed to play nine holes the first day, 18 holes the second, and 13 the third day.
Da boyz wrapped up my ankle, carried my bags and drove the golf carts right up to my balls. The shot gun seat was always reserved for me. Pretty supportive bunch for all the trash talking this group can spew out.
My biggest concern was my ankle getting worse since my wife clearly stated that I would not be welcomed back home if my ankle worsened from golfing. Apparently, she’s tired of all my “stupids” as a man, and thought the reasonable decision would be to stay home. Some of da boyz offered their homes as refuge if I ended up homeless.
The bottom line is that as we’ve all gotten older, we’ve all had to take our wives’ anger more seriously. We’re not invincible anymore, not physically, not mentally, not in our personal relationships. Even in our drunkenness our bravado has waned, giving way to some sensitive emotions. Ah, da boyz are moving into their mid-life.
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So, there are 32 million more men than women under the age of 20 in China according to a 2005 Chinese census. That’s roughly the population of Canada. Yikes!
Now, the price of gifts required by the families of brides is skyrocketing. This is a social anomaly in the making for 30 years of population planning policy and the Chinese customary preference for sons.
If Chinese parents had been strategic marketers, they would have seen the opportunity of the inevitable rise in value of daughters. Of course, I partly jest, but there certainly is a marketing and business lesson in there as well. What changes are occurring today that will alter demand tomorrow? There, my friend, lies the opportunities of tomorrow.
In China, ill-intentioned people are starting to take advantage. Change offers opportunity for every sort. Here’s a WSJ story about scamming brides.
Next time I’m in a bar with an imbalance of male-to-female ratio, I’ll have a different perspective.
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So, it begins anew for me once again.
Last Friday was my last day with Ascentium. Today is my first day working on what I consider my sixth potential venture.
My experience at Ascentium was wonderful for the most part. Ascentium bought my company, ZeroDash1, in March of last year (2008). We were excited about being part of a larger digital agency, and thought that our expertise in Analytics and Optimization could be a big difference maker in Ascentium’s projected growth.
Reality of integration and change management issues (Ascentium had acquired various companies before us) had slowed our impact a bit at first. However, over time, we became the full analytics arm of Ascentium. Times have hit hard the agency market and there will continue to be adjustments moving forward. I’m convinced, however, that Ascentium will maneuver successfully through the economic environment and emerge someday as a leading voice in the industry.
For me, I’ll have to watch Ascentium’s success from the sidelines.
Having been involved with five previous startups, the prospect of being on my own doesn’t seem all that daunting. I guess I’m a risk taker at heart. I think that the drastic change in the economy over the last nine months offers up new opportunities. So many companies are struggling to survive with the wrong DNA — one that was born of another time. That opens up opportunities for companies developed for today’s environment to emerge and thrive. Yes, change always equals opportunities for those who can think and move fast.
Who knows where the road of life will lead me now? But somehow, that thought of uncertainty puts a big smile on my face. I’m ready to find out.
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