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Startup Valuation: 3 Tips For Putting A Price On Your Company

When raising angel or venture capital, startup founders are often concerned with questions about the valuation of their company. Putting a value on an early stage company-- especially one with very little or no revenue and negative cash flow-- is difficult to do, since most traditional valuation methods do not work well for startups. In this article, we discuss how startup companies are valued by investors and how you should set a valuation range when dealing with seed, angel, or VC investors.

The Seats of Success: How Harley-Davidson Powered Itself to the Top

Harley-Davidson fans are known for the overt pride they take in their machines. A T-shirt that one devotee made reads: “Put your ass on some class.” Whether that motto has been officially sanctioned by the company or not, that is exactly what hundreds of thousands of bike riders around the world have done. With more than 33 models of touring and custom Harleys, which are sold by over 1,300 dealers, Harley-Davidson remains the only major American manufacturer of motorcycles, and dominates sales of the more heavyweight bikes. How did four young boys from Milwaukee turn their shed-bound experiments into a thriving enterprise and a cultural icon of America?

Lesson #4: In Following Your Passion, You Become Your Own Best Customer

How were they able to devote themselves day and night to manufacturing their mighty machines? Why were they so hell bent on ensuring the highest standards of quality? And what drove them to dedicate themselves to the same business for the majority of their adult lives? William Harley and the Davidson brothers didn’t just make motorcycles – they lived and breathed them. They were, in fact, their own biggest fans. It was in pursuing the one thing they were passionate about that they were able to create such a classic tale of entrepreneurial success in America.

Lesson #3: Develop A Habit Of Hard Work That Works

When Walter Davidson first heard about the attempts of his younger brother and his friend to build a motorcycle, he was intrigued with the possibilities. After helping the two youngsters assemble the parts they had fashioned, Davidson knew there was wealth of opportunities that lay ahead. He immediately quit his railroad job and moved back to Milwaukee, finding work as a machinist, in order to help build the business. However, in its early days, the Harley-Davidson Motor Co. did not have enough funds to pay the four founders. So dedicated was Davidson to the new company, that he continued to work as a machinist during the day, while assembling the motorcycles at night. This dedication and hard work was a trend that would become ingrained in the corporate culture of Harley-Davidson.

Lesson #5: Invest Your Money in People
“I never, at any period of my life, aspired to become wealthy, but the fierce competition perhaps developed a fighting spirit, and in the effort to secure our share, the business has succeeded,” Kellogg once said. “It is my hope that the property that kind Providence has brought me may be helpful to many others, and that I may be found a faithful steward.”

When to Walk Away

Last month at TED2006 I had dinner with a leader of a major technology company, and we discussed the Big Task Summit my firm is hosting in April. On behalf of our clients Kaiser Permanente, Safeway, and Dupont, we’re inviting leaders from 30 other companies to share in some significant research focused on reducing corporate healthcare costs and increasing employee wellness funded by these companies. This executive suggested I invite one of her co-founders, saying,"He really does care about these issues."

Harmonix Music Systems - Now That's How An Angel Deal Should Work
I’ve invested in over 50 angel deals in the past 12 years. Several have been big winners for me, a few have done ok, and some have failed. Many are still active – including several that I did before I started making venture capital investments in 1996.

Entrepreneurs, VCs, and Peeing on a Burning Bush
Many surreal things have happened to me as I hang with entrepreneurs (including the time a runaway golf cart ran me over, but I digress). A recent incident, however, just joined the pantheon.

What Sequoia Capital Looks for in Startups
Elements of Sustainable Companies Start-ups with these characteristics often foretells the success of a business and the likelihood of it becoming a sustainable, enduring company. We like to partner with companies that have:

Whats The Best Corporate Structure For An Early Stage Company
I got the following question from a reader a week ago.

Founders at Work
This is a picture of my copy of Founders at Work: Stories of Startups’ Early Days. It has broken my record for the “book with most stickies.” My system is that the stickies on the top edge are ideas for my next book, and the ones on the side are ideas for this blog. As you can see, it’s a gold mine for great stories about entrepreneurship. Here is a list of some of my favorites.

Lighten Up / Tighten Up
As I was writing my previous post about The Constipation of Scale I got an email from a co-investor talking about a CEO / CTO conflict. It had an interesting phrase in it that I realized applies to many CEO / CTO relationships – “CEO needs to lighten up and CTO needs to tighten up.”

Business Plan - Charter
Back when I was 21 years old I figured you had to start somewhere. Our business plan started with a “charter statement” which – in hindsight – was roughly equivalent to a vision statement.

The J-Squared Facebook Someday Millionaires

BusinessWeek has a fun article about my buddies Jesse and Joe from J-Squared Media titled Who wants to be a Facebook millionaire? Jesse and Joe were founders of one of the TechStars teams this summer – when they showed up their original idea was to create a sharing tools that would distribute links to your networks of friends (not in Facebook – on the web.) The Facebook Platform launched shortly after TechStars started and Jesse and Joe got all over it.

Why Aren't Blogs Like Mine Worth Anything?
I get emails all the time telling me that I'm #1 in this list of financial blogs, #3 in that one, and so on. My response is always the same: That's nice, but I'd rather you bought me. But no-one does. Buy me, that is.

Hey, What if the Founder Gets Hit By a Bus? Nada
One of the questions investors in early-stage companies -- both private and public -- often ask is this: What if the founder gets hit by a bus? It is, of course, an investor's way of saying, "How much of this company's continuing success requires this man/women at the helm?"

Building the Perfect Startup Team - It's More Than Employees and Founders

When investors evaluate a start-up company, they report about 25% of the final decision is based on the team. Even if external funding isn't in the start-up's future plans, it's a good idea to consider the criteria used by investors; they have seen many startups come and go. So what makes an effective team? How do you build one? The success of any venture hinges upon the strength of the team and this is never more true than a company at its beginning. And the team is not just the company's founders and employees.

Text To The Future: How Dorsey, Stone, and Williams Achieved Success

“We wanted to capture that feeling: the physical sensation that you’re buzzing your friend’s pocket. It’s like buzzing all over the world,” recalls Dorsey of the name-choosing process. “We came across the word ‘Twitter’ and it was just perfect. The definition was ‘a short burst of inconsequential information,’ and ‘chirps from birds.’ And that’s exactly what the product was.”

Lesson #5: “We’re holding on to the ship with our fingernails”
“I remember Ev going home one weekend and coming back with this genius plan for Odeo, and he asked me to read it,” recalls Stone. “It was this whole plan for how we could make it a successful business. I thought wow this is genius, but then again so is podcasting. Then slept on it. Do we want to be kings of podcasting? We were constantly gut checking.”

Lesson #4: “We focus a lot on culture”
“Watching Ev really sink his teeth into the role of CEO, take it very seriously,” says Stone. “He very genuinely wants to innovate – not just from a product or technology standpoint, but from a company standpoint. For me, I’ve learned about what it means to focus on a culture, to build social responsibility and the idea of a company as a super-organism.”

Lesson #3: “There is something healthy about friendly competition”
“There’s a lot we can learn from smart people out in the world,” says Stone. “One of the things I like so much about President Obama is his global vision that it’s not a zero-sum game, where one country is going to win the game of earth. We have to work together.”

Lesson #2: “So what if it’s just fun?”
“We were working at Odeo, but we weren’t as passionate about the podcasting service as we should have been,” recalls Stone. “We weren’t using it, and that was a problem. Twitter got started because Ev gave us some freedom to think along different lines.”

What Every Home Based Business Entrepreneur Needs to Know to Make Money Before Starting a Business
There are 12 key issues that are important in being able to find the best home based online business business.

What You Need To Know Before Starting A Home Based Business
There are many things to consider when starting a home based business for yourself. In This article I talk about just a few things you need to know before you get started.

Do You Think CEOs Flying Blind in their Executive Jets?
The Global Financial Crisis is proof positive regarding the unlimited power and potential that our business executives have. This is an immense power and potential for doing good, or bad!

Who is your 'brochure' written for?
We are sick of apologising for our businesses not being able to live up to false expecations and promises too frequently splashed about with gay abandon in the marketing materials, annual report, PR hype et al that we are required to use.

Small Customers Have Money Too
How Stan Gross survived before he hit it big in his consultancy.

Startups: Top 10 Funding Sources
Even in today’s stressed economy, there are multiple ways to keep your startup alive and moving forward. I find that many startup founders fixate on one or two, often at the expense of their business. Following is a prioritized larger list of sources, with some “rules of thumb” which may save you a lot of time and energy:

Getting your story straight - not so Innocent!

Innocent was launched in 1999, and ten years on, has over two thirds of the UK smoothie market, selling two million smoothies a week. Their smoothies are delicious and 100 percent natural, but that doesn’t explain their success. The three founders came from advertising and marketing backgrounds, not food. They didn’t know more than anyone else about ingredients or health. But they understood messaging. As Maurice Pinto, their first angel investor, said: “They wanted to start a company with the idea of creating a brand. Smoothies were simply the vehicle.”

Flight of Angels
The current economic crash may force 'Bootstrapping' to be the primary funding strategy for many startup companies, for the next few years.

Seven Deadly Sins of Startups
Everybody has his favorites for this list, so I thought I would share mine. It’s always painful when a startup fails, but as a mentor to founders I would hope that you can learn from these experiences and not stumble on the same issues.

From Founder to Leader – Building a Company From an Idea

“Right now it's only a notion, but I think I can get the money to make it into a concept, and later turn it into an idea.” -- Woody Allen Much has changed since Woody Allen came up with this line in 1977 – but the basic premise remains – any entrepreneur has the ability to bring an idea to fruition with the right backing. However, it takes more than money to make it work, and one of the main points of pain in building a company is making the transition from founder to leader. It’s a tough transition, and one that many startup founders fail to make.

Markus Frind and Plenty of Fish - A Case Study in Effective Sales and Marketing Strategy

A couple weeks ago, I read one of the most compelling articles on a growing business that I have read in years. In his article entitled, "And the Money Comes Rolling In", Inc. Magazine writer Max Chafkin talks about Markus Frind's strategies for growing his personal dating website, Plenty Of Fish. Frind's idea was to build a basic user-content-driven website and pay for it with ads. He started from scratch and built out a minimalist site by anyone's standards (look at it now and there still isn't anything too impressive - distorted personal pictures and a heart favicon). But the idea resonated with thousands of people who were paying for a dating service and looking for a free alternative. He is now clearing $5 million a year after taxes. He has a handful of staff members and a nice, but mostly unfurnished, office in Vancouver.

Moving Procurement Practice Beyond Adjunct Complexity (COUPA Profile)

“Organizations that already have a technology driven program in place or have just recently implemented one still surprise me with their significant interest in the dramatic changes in procurement methodologies and practices. But rather than focusing learning on new and emerging technologies, today’s procurement professionals seek insights into the actual processes that drive their enterprises. The impetus behind this change is largely the result of the fallout from the consistently high level of e-procurement initiative failures. Industry studies for the period 2001-2005 indicate 75-85% of all programs fail to achieve the promised results. (Editor’s Note: the rate of failure continues today, with some industry pundits suggesting that ERP-centric programs miss the mark as much as 90-95% of the time.)

What’s so difficult about building a successful startup?
The article covers the most difficult aspect of building a successful startup.

Backpack business idea prompted by frustration

After years of travel with bags that were miserable, non-functioning, or unattractive in a business setting, Myrna Marofsky and Karen Stinson decided to design one that worked for them and for other women business travelers. They are the founders of WiseWomen, an e-commerce business selling the WisePack™, a perfect travel backpack purse for women. The bag was designed for women by women and has many features that make it both fashionable and functional. Read about how they started up the business and overcame obstacles along the way.

Identifying Decision Making Strategies
People actually make decisions on a highly individual basis. It is important to understand how people make decisions when you want to influence the decision they make. You will want to know his or her decision strategy. A decision strategy is the process a person typically goes through in making a certain kind of decision.

Financing Alternatives
We are often asked about how a company can get its initial financing. There is usually considerable misunderstanding about the various alternatives and their implications. This article positions the various alternatives that a company should consider before embarking on a financing strategy.

Two Dirty Words…
It’s interesting how the meanings of certain words change over time. These two words used to represent the apex of values and ethics. Today these two words cause anxiety, disdain and divisiveness...

Self-awareness: key to growth and change

To become self-aware is to be able to notice how you really feel, think and behave. It is a self-help skill that can be learned and which, when responsibly developed and often with skilled help, enables you to use a powerful mechanism naturally available to you to enhance you life and work as you choose. It is a natural mechanism, yet most of us have through our life experience cut ourselves off from truly accessing what we have within in us to make our lives really more effective and fulfilling of our potential.

Stick to Your Guns and Understand That Failure is Natural
Stick to your guns. Outside advice should be welcomed but the vision should come from the entrepreneur and you should stick to your guns. Just because nobody has done it before doesn’t mean that you can’t; I urge entrepreneurs to maintain their vision, and the payoff will come.

5 Reasons Why You Need To Build A Financial Model For Your Startup
To be successful, entrepreneurs and startup founders need to have a good handle on their business. The best way to do this is to build a financial model, which will give greater insight into your company. It will also make your startup more attractive to venture capital investors, lenders, or angel investors.

Leadership Coaching Based On Organizational Values

Within a leadership development coaching process it is important to know and understand what the stated and actual organizational values are, so both the coach and the colleague can better understand how people fit or align themselves within the organization. A leadership coach needs to be sensitive to how things are actually done within the organization in which they are going to be coaching leaders and other key individuals.

The Stupid Business: Fifteen Guaranteed Signs that Your Business Will Fail
There are smart businesses and stupid businesses. Smart businesses grow profitably, generate cash flow, increase in value over time, and operate without significant input from the founders. Stupid businesses aren’t set up to do any of these things, and are destined to eventually fail. This article provides fifteen signs that you might have a stupid business.

What is Link Building

Link Popularity refers to the number of links pointing TO your site FROM other sites on the Web. The Search Engines consider your site more important and rank it higher if several other sites link to your site. Now these days, inbounds links are the one of most important factor for getting a high keyword ranking, the most search engines are ranking their search result on the link popularity from your site.

Learning Organizations is Action Oriented

Execute. Implement. Stop talking and do something. Actions speak louder than words. If you have a learning organization, it needs to be a doing organization too. No matter how you put it, the evidence is rolling in: The distinction between so called “old economy” and “new economy” companies are overblown. Regardless of industry, knowing what to do isn’t enough. Those companies and business units that dominate their competitors win by turning knowledge into action.

E-MAIL...OVERUSED, ABUSED & INVALUABLE
"I predict that by 2010, 100 percent of network traffic will be packetized. None of it will be voice because we will be too mad at each other from sending flame e-mails." Vint Cerf, former executive vice president of MCI and one of the founders of the Internet.

Business Profile: dorothyduncan
dorothyduncan founders Mandy Duncan and Dorothy Ghettuba talk about what it took to start up their company and what advice they have for other African startups.

Carbon Copy PRO is a Aston Martin for online entrepreneurs
The co-founders of Carbon Copy PRO wanted to create a system that would allow entrepreneurs like you and I to master online marketing with ease. What they came up with matches no other competition, and is backed with their integrity, and constant pursuit of innovation.

Renewing Limited Government: Term Limits
In America, the "land of the free," the government has run amok. The Founders, who fought (and in some cases, died) to leave a country wherein citizens were to rule and the government was supposed to be limited, would be shocked at the size of the behemoth that is the modern federal government. And many states have just as bloated a bureaucracy....

Perceptual Positions
Perceptual Positions is an NLP (Neuro Linguistic Programming) technique devised by founders John Grinder and Richard Bandler. Its origins are rooted in the theories of the various psychologists which Grinder and Bandler modelled while developing NLP, including Milton Erickson, Fritz Perls and Virginia Satir.

Dental Hygiene and Business
It shouldn’t take a catastrophic event for founders to realize that they need to start running the business like a grown-up

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