David Cummings on Startups

How Can a $10 Million in Revenue Company be Worth More than a $100 Million Revenue Company

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David Cummings

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monopoly-e-commerce
Image by danielbroche via Flickr

Among entrepreneurs there are two common ways to show off: how many employees you have and how much revenue you have. Of course, neither way perfectly accounts for the success of the business. That’s right, a business with $10 million in revenue can be more valuable that a business with $100 million in revenue. Here are some factors that determine company value:

  • Gross margins (the higher the better)
  • Net margins (the higher the better)
  • Equitability of revenue distributed across customers (e.g. a small number of customers representing a large percent of revenue is less valuable)
  • Percent of revenue that is recurring (the higher the better)
  • Length of contracts (the longer the better)
  • Growth rate (the higher the better)
  • Barriers to market entry (the higher the better)

So, a high growth and ultra profitable recurring revenue $10 million company can be worth more than a no profit, declining $100 million revenue company.

What else? What are some other factors in company value?

Comments

4 responses to “How Can a $10 Million in Revenue Company be Worth More than a $100 Million Revenue Company”

  1. Geoff Avatar
    Geoff

    Customer satisfaction. The higher the better.

    Reply
  2. Dave Avatar
    Dave

    1. Marketshare
    2. Location
    3. Team
    4. Product
    5. Customer List (opportunity to grow rev by customer vs maxed out)
    6. Category leadership
    7. Executive track record
    8. Stage of product/industry lifecycle
    9. Opportunity to own a large industry category vs. a small niche category
    10.Orderly financial, accounting and due diligence records

    Reply
  3. Gross Margin and SaaS | David Cummings on Startups

    […] Gross margin is also a reflection of how valuable a dollar of revenue is to the business. If the company is an ecommerce business with 20% gross margins (commodity products) vs a SaaS business with 80% gross margins, every additional dollar of revenue for the SaaS business is equivalent to four dollars in the ecommerce business (due to the much higher contribution margin). Margin is one of the main reasons a $10 million revenue company can be more valuable than a $100 million revenue company. […]

    Reply
  4. ronbabich Avatar
    ronbabich

    Its all math, its amazing to me the opinions I am reading here. It comes down to Revenue, what stage the company is in to achieve those results and expectations on recurring against that ramp.

    Reply

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