web 2.0 Archives - Page 13 of 19

2 schools of business valuation

Posted on October 10, 2009 by Steve Sammartino

A favourite game of entrepreneurs, especially in the technology industry is discussing whether companies are worth the price they are bought out for. $1.5 billion for Youtube ………. Sales prices with infinite price earnings multiples (because there are no earnings, or they are loss making). Versus a company being sold for a few times it’s annual earnings with a long period of earnings history.

A more relevant discussion would be which school of business valuation was used during the transaction, and there are two:

1. Sale price representing believed potential

2. Sale price representing return on investment reality

Which is more valid? Well it depends on which side of the equation you are residing. I’d say when selling, we should be aiming for potential. When buying we should go with reality. When buying a business the simplest question to ask ourselves is this:

On current earnings, how many years will it take me to get back my original investment.

There’s no doubt certain industries are more likely to sell using the potential valuation method. Burgeoning industries like the internet, IPO’s and even railways 200 years ago are good examples. To get away with selling on ‘potential’ the industry needs to be growing, the future unknown and your company well known. If your startup ever gets enough traction to sell to an incumbent, then take what you can get – sell on potential.

Timing vs Time in

Posted on October 6, 2009 by Steve Sammartino

The timing versus time in argument is a long standing one in investment circles. And it gos a little bit like this:

People who are for ‘timing’ the market proclaim that smart investors should time their entry and exit for their investments. And that investors should exit when markets are too hot, for example when price earnings ratios are well above the long term average. And enter at the opposite end of the spectrum. Resulting in higher profits.

People are are for ‘time in’ the market proclaim that smart investors should stay in the market at all times. That when you enter or exit the market does not matter so long as the investment has been in market long enough. Which will result in a long term result of profitability due to the period of time in the market, allowing market averages to endure.

Both parties happen to be correct.

What neither side bothers to discuss is most important factor in either strategy. Probability. The probability of success of either the two different investment strategies. It turns out that it’s a pretty simple proposition related to risk and probability.

Timing the market – Can have very high returns (losses) but a much lower probability of success.

Time in the market – Has average returns (rarely losses) and a very high probability of success.

Numerous studies have proven the above to be fact.

How does this pertain top startups? Well it reminds me a lot of the internet and entrepreneurs attitude towards it. Most entrepreneurs believe that the only way to succeed is to win big. To sell out our startup to some digital behemoth. Our business brains have been hijacked by the Techcrunch stories and the large novelty checks presented to the likes of My Space, Facebook, Digg, Flickr and friends …

These are a little bit like investments where the market has been timed. It’s a low probability event. Sure there’s a lot more to it than a passive investment vehicle, but the probability of it happening is so to us, is so low that it’s not worth considering.

What we ought do instead is focus on the high probability events. In an entrepreneurial sense success is a very long term proposition. So our goal should be to remain in the entrepreneurial game as long as possible. As we do this we inevitability move up the learning curve and increase our chance of winning at some time in the future. Winning may not mean a cheque in the millions, but it might mean earning 5 times what we could in wages, as well as having a lot more fun doing it.

So how do we stay in the game?

Keep our costs low. Know how to bootstrap. Enjoy the simple things in life. Know that the having is in the doing, not in the owning of stuff.

Startup Blog says: Use probability to your advantage

Twitter rules

Posted on October 2, 2009 by Steve Sammartino

These are the rules I have invented for myself for effective use of twitter. By the way, it’s pretty much the only social media tool I use these days. Mainly due to it’s succinctness. When it comes to Twitter this is how I roll:

– it’s my office water cooler. It’s the office conversations for us entrepreneurs

– it’s an advice forum where I ask my twitter friends (smart people I trust) questions I don’t know the answer to

– it’s where I’m not afraid to have an opinion even if it’s a bit risky

– it’s where I don’t do anything I wouldn’t do in the real world. The on line world is the real world

– it’s where I meet like minded people. First virtually, then physically

– it’s where I get last minute tips for restaurants, bars, coffee and traffic updates

– it’s where I document my life, verbally and visually via twitpic.

– it’s where my digitally inclined friends are. I’m glad they are there

– it’s where I promote my stuff occasionally, but this plays a minor role

– it’s where I share cool stuff I find, to the people who will care about it

– it’s where my reputation is on the line 140 characters at a time

– it’s where I won’t just make friends because you shook my hand (called following)

– it’s where I will become your friend if you engage in a conversation with me (called @ replying)

Startup blog says: Twitter is a friend of the entrepreneur.

How do you use twitter?

the 5% rule

Posted on October 2, 2009 by Steve Sammartino

5% of our customers wont pay on time

5% of our customers wont pay at all

5% of our employees wont deliver what they are paid to

5% of our employees will steal and or damage company property

5% of business partners will break contracts and even worse, not keep their word

5% the people we meet will be genuinly dishonest and painful to deal with

It’s the 5% rule. In fact quite often business discussion are too often focused on the 5% of times the business model will break down and we will get cheated in some way. The amount of strategy, board room and agency discussions I’ve had about the 5% of people who make business models and ideas imperfect are countless. The point for startups, no less any business, is to accept the fact that all models have gaps. And more often than not these gaps the doing of the 5% rule.

the 5% rule

The problems with trying to remove the 5% is that we build gates and protections which often stuff up the 95% which is working. We create unnecessary friction. What we are better off doing is thinking about the problem like water evaporation. It’s going to happening, no matter what we try. But we must remember that the very large majority of people are good.

My advice is simple. Know that it exists, and forge ahead anyway.

Risk Taking

Posted on September 30, 2009 by Steve Sammartino

As an entrepreneur I’m not afraid of ‘considered’ financial risk. Just like any Plumber or Electrician would guarantee their workmanship, we must provide a satisfaction guarantee. It’s a great way to reduce purchase barriers. Something most successful brands do…. here’s a little exercise for you: Next time you a buy a household cleaning product or chocolate bar, flip it over and read the fine print and *bang* you’ll see a money back satisfaction guarantee. We must provide that too.

I’ve also done this on my latest little project Startup School. Here’s a recent conversation I had with my wife over email:

ME: Hey check out my Startup School receipt – pretty cool huh? (below is a part screen grab of said receipt)

Wife: As a law graduate of course, I would nervous about making guarantees but up to you… Like the poetry!

Me: One must embrace risk in entrepreneurial fields and guarantee work, or revenue wont happen. it’s that simple. It’s a risk I’m prepared to take.

Wife: I know….that’s why YOU’RE the entrepreneur!

Unlearning & decorporatisation of self

Posted on September 23, 2009 by Steve Sammartino

Another interview I did with Fiona Boyd the uber successful on-line entrepreneur who built and sold www.artshub.com.au about ‘Unlearning’. A concept which we need to embrace when leaving the corporate world to start up land. Enjoy.

[youtube=http://www.youtube.com/watch?v=SwvP-bxaO7U]

Fiona has a great site with interviews and ideas on niche content. www.nichecontentmillionaire.com The title says it all – and she’s done it. Check it out.

Steve.

Micro Fame

Posted on September 19, 2009 by Steve Sammartino

Recognition of effort is an important to the human psyche. We actually don’t like money as much as society would have us think. We what like is the recognition that people believe money buys. In this sense the human brain of the ‘uber consumer’ breaks it down a little like this:

I want to be recognised as a worthy

I want people to know I have achieved

If achieve I will be rewarded with payment in the form of money

People can’t see my bank account and wont know how successful I am (my self worth)

So I’ll buy things with my money which are on public display (car, house, holidays, clothes)

People will know these things require lots of money

People will know I have earned lots of money

Only people who are successful at ‘something / anything’ get lots of money

I can be happy that people will know ‘I am somebody’.

I am a worthy person

Then there’s people who know all this but take the short cut and just buy stuff they can’t afford on credit cards to define their success through consumption.

Smart startupss can use this human pshyche to their advantage as well. Rather than the success, money consumption trail, they can provide something much more immediate and altruistic. They share reconigition. The reward and promote their people as part of the success process. They provide micro fame.

This can be done is so many simple ways. Ways which rarely have a large financial burden on either party, but create a union between the two players for mutual benefit. Stuff not limited to but including:

– Member ratings

– Access to exclusive services, parties, insider events.

– Recognition in digital and print media

– Crowd sourcing & revenue sharing of such User Generated Content

– View counts

– Followers / friends / subscribers

– Most forms of social quantification

– Overt branding which has ‘user personlilty rub off’

So the question then begs:

What sort of Micro Fame is your startup or business providing its people?