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10x valuation club - As you think about your idea how to maximize what you focus on

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  • 10x valuation club - As you think about your idea how to maximize what you focus on

    One of my primary objectives over the last few years has been to build things of great purpose and in turn value. We spent years primarily focused on being a cash flow based business. That being 100% focus on how do we make as much money as possible with little to 0 regard to how we're building intrinsic value inside of our company.

    This has sent me on a personal journey with few questions in mind.
    1. How do I maximize my time invested into a product or service
    2. How do I position a service for getting the highest value possible.
    If you don't know business are typically bought and sold based on a multiple of either Revenue, Gross profit or Profit.

    Revenue - is how much the company makes over all each year.
    Gross Profit - is how much the company makes, minus marketing and manufacturing materials but doesn't include overhead like employees. This marketing costs and manufacturing costs are called "Cost of goods sold or COGS"
    Net Profit - Revenue - all costs

    Different industries use one of these 3 things to value a company. So those numbers obviously go from highest to lowest. Revenue being the highest. So ideally you'd like to sell at some multiple on Revenue. But there's a lot of businesses that sell based on Gross Profit or even worse Net Profit.

    Once you determine what the industry standard is for what businesses buy and sell for then you typically apply some kind of multiple to that.

    For example

    A company typically sells based on revenue and for a 3x multiple. That means that company would roughly be worth annual revenue x 3. Of course this is all dependent on a buyer and sellers desire to move quickly much like any other sale.


    Why do you care?

    If you're going to take the time to go build something don't you think you should focus on the thing that's going to create the most value possible? Just cause an idea might make more short term money then another idea is it the best option? That's only for you to decide.



    As I said I've been looking around and talking with people about this a lot lately. If you're curious about this and end up walking down this same road I'm sure you'll get a ton of varying answers depending on who you ask. But out of everything I've heard and found this is by far the most comprehensive and easy to understand piece of what the levers are to increase or decrease valuation.

    AboveTheCrowd - All revenue is not created equal the keys to the 10x revenue club


    Is the product you're working on building maximizing what you want to do? Can you take a small step in the direction rather then build the whole thing and set yourself on a path to 10x revenue value?

    Let me know your thoughts...
    Jason Akatiff, CEO - A4D Performance | Follow Me on Twitter | Read my Blog
    >> A4D - CPA Network, 8 years in business, never missed a payment. Sign Up Here! | NEW Skype: live:jasona_33 <<<

  • #2
    Excellent topic Jason.

    I will say for myself this all boils down to value. How much value can we provide and in how little effort?

    Value to me is what brings users/customers/partners....which leads to higher valuation regardless of the model used.

    With today's technologies there is more opportunity than ever before to provide immense value.

    So we are left with choosing the right idea and executing it.

    WhatsApp is a simple idea that provides tons of value, executed reasonably well...then Google knocked on the door.

    Comment


    • #3
      That is a great topic. I agree that providing value as efficiently as possible is important. Technology not only allows business owners to provide immense value, but also more quickly and at scale than ever before.

      Brings more questions to mind as products are built:

      - Build a brand as you build your product?
      - Build assets (like email lists) as products are promoted?
      - Bootstrap or take investor money?
      - Look for strategic partnerships up front for growth?
      - Do you need a Co-Founder? ( if you are building a technical product and are a non-techie, maybe you should partner with a CTO)

      These questions barely scratch the surface, what else?
      Ideas are everywhere, it's execution that's in short supply.

      Comment


      • #4
        I really enjoyed that article. It's definitely true that some businesses are just way better at making money than others, and many people are distracted by short term payoffs. I did this myself after reading all the success stories on STM, so I got into CPA marketing. The short term payoffs are great, just I don't see it as a real business.

        I find myself at a stage now where I keep coming up with ideas for businesses, but without having good guidelines I tend to come up with ideas that aren't as great as they should be.

        Besides the article, where else can I look for these kinds of guidelines? I've been reading through Zero to One by Peter Thiel which seems promising, but similarly to the article the guidelines are quite broad and not that easy for me to wrap my head around.

        Comment


        • #5
          Originally posted by h3nno View Post
          I really enjoyed that article. It's definitely true that some businesses are just way better at making money than others, and many people are distracted by short term payoffs. I did this myself after reading all the success stories on STM, so I got into CPA marketing. The short term payoffs are great, just I don't see it as a real business.

          I find myself at a stage now where I keep coming up with ideas for businesses, but without having good guidelines I tend to come up with ideas that aren't as great as they should be.

          Besides the article, where else can I look for these kinds of guidelines? I've been reading through Zero to One by Peter Thiel which seems promising, but similarly to the article the guidelines are quite broad and not that easy for me to wrap my head around.

          Welcome to the forum h3nno,

          I made a tweet the other day

          "Just because you Can doesn't mean you Should. Doing one thing is limits you from something else. #choosewisely"
          I obviously come from the same instant gratification world. It took quite a while to be able to focus on longer term things rather then shorter term.

          And of course I made a huge mistake that I'd advise you to steer away from.

          The first product I picked to build was something that couldn't be proven with a quick MVP for market validation. Some of you are familiar with http://www.playstartupalley.com the video game we built to teach people to buy media in a fun virtual video game world. We're now 4+ years and probably 1.75 million into this product. It took us to 3.5 years before the product was ready for release and we could start to market it. Now we're struggling to find the right messaging to do what we're amazing at. User acquisition....

          With this said I'd highly suggest whatever you decide to build out you make sure your MVP (minimum viable product) to prove out market validation is very short in build cycles. Then you can see if the market is there for it. Once you prove the market then go all in and build an amazing product.

          A lot of what this forum is about is how to build those quick MVP's to prove out markets. We'll be talking about the tools & strategies we use to make these things happen.

          As far as things to read for product building it depends on what space you want to get in. There's a lot of great blogs out there. But most are more specific to types of products.

          Those basically break down for me to:

          Lead generation, creating leads and selling leads for 3rd party businesses (higher ticket items, consulting)
          Digital goods & membership sites, This is virtual products that are just delivered via email or membership to a site like this. (clickbank, jvzoo)
          Ecommerce, selling your physical product or someone else's physical product. (trials, stores)
          SaaS, software as a service platforms like CAKE, Hubspot, unbounce, clickfunnels, credit reports, background checks

          Let me know what you're most interested in and I can give you some direction on blogs to read.
          Jason Akatiff, CEO - A4D Performance | Follow Me on Twitter | Read my Blog
          >> A4D - CPA Network, 8 years in business, never missed a payment. Sign Up Here! | NEW Skype: live:jasona_33 <<<

          Comment


          • #6
            Originally posted by smaxor View Post
            Let me know what you're most interested in and I can give you some direction on blogs to read.
            Thanks for the response man, and thanks for setting up this forum. It came just in time for me as I'm about to quit my job and get into product creation full time.

            I had a look at your video game, really interesting. My dad had a similar idea in the educating people to do business scene, he has also spent a lot of time on it but never got it down to a finished product.

            Anyways, as for the space I would like to get into, I'm pretty torn between the last three you mentioned.

            I have some friends that do pretty well with SaaS, the recurring monthly income they generate fits into the 10x valuation club requirements too. Good margins, good growth etc etc, ticks a lot of those boxes.

            Ecommerce seems pretty cool too. I'm actually meeting up with this family friend who happens to be a badass industrial designer. He's been in the game for 30+ years and designs all kinds of stuff, from furniture to military aircraft. He just has no clue how to market his stuff, so usually just does contract work for other people. Feels like working with him would be really easy to get prototypes out quickly to test the market. It's just harder for me to figure out how this business model fits into the 10x valuation club.

            And then I also have friends who are killing it with information marketing, where they build big "authority sites" and funnel their traffic/email list to different kinds of offers. Also not hard to make this fit into the 10x valuation club.

            So I am kind of unsure what to do at this stage, trying to figure out which of these three is the best one to get into. As you said, you've gotta choose wisely.

            Comment


            • #7
              Managed to come up with a fairly decent idea for a SaaS app, so busy pursuing that now. Any resources to checkout before I go all out with this?

              Comment


              • #8
                Very interesting stuff about the company valuation when it comes to selling. I've been listening to the Build to Sell podcast, really interesting stuff, he interviews people who have succesfully build and sold companies. What blows my mind is that some companies will buy a smaller company for MUCH more than that company will likely ever make, because of synergy, market expansion, user acquisition, etc.

                Here is one podcast with a guy that sold a business that had $4M in sales annually, he is the guy that runs Tropical MBA and has a paid traffic/ecommerce background:
                http://www.builttosell.com/ian-schoen/

                Comment


                • #9
                  I was going to suggest the book "Built to Sell" but I see Malachii has already - well the podcast.

                  The book has a "fiction" format to teach how to make your small business sell for the maximum amount - ie what buyers value most.

                  Comment


                  • #10
                    smaxor Great forum! Not sure if it's still active but I wanted to add something too.

                    I believe you can sell any business which is cashflow positive. Even if the business is easy to copy I believe you should still be able to sell it (especially when it generates recurring revenue from user subscriptions).

                    I have seen my competitor building products with a single intent to sell the business. They have already sold a couple to an institutional investor aka fund. There is no proprietary technology behind any of the businesses they sold. They take an existing product, find a new angle, scale it, put customers on a rebill and then sell the package to the fund.

                    I think a rebill based online business is an asset same as a bond or a commercial real estate is. Recurring revenue could be seen as a coupon in bonds or as rent in real estate. For instance, your business makes $1M net profit/ year and your asking multiple is 5x. From an investor perspective that's a 20% yield (which is very competitive in the financial market) and when leveraged properly return on equity could go as high as 60%.

                    Therefore I think you don't need to invent the next Facebook to make a nice exit. The only question is how to find the buyer.

                    Comment

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