What’s Your FU Money Amount

Various Federal Reserve Notes, c.1995. Only th...

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At today’s EO Accelerator Accountability Group meeting one of the topics I facilitated was around business valuations and estimating the value of a startup. For these startups with under $1 million in revenue the most common valuation range is 4-6x profits (e.g. $500k in revenue startup with $100k in profits might be worth $500k). After Accelerants went around and talked about how they viewed the value of their business they then answered the question “How much money would you need for it to be FU money?”

F%!@ You money is defined as the amount of money where you never have to work again and have the resources to do whatever you like, whenever you like.

After going around the room the general consensus was that FU money was between $5 million and $10 million after taxes. That number is probably double if you live in California or New York.

FU money is an interesting concept to think about and is a worthwhile mental exercise.

What else? What do you think of FU money and what’s your amount?

Base Hit to Homerun Values in a Startup Exit

Homerun EP

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The business world loves sports metaphors. When I was at Duke in the late 90s the business school offered a course on sports metaphors geared towards foreign students because metaphors are so prevalent. One of the more common phrases for startups is homerun, meaning that the startup was bought for a huge amount or went public at a massive valuation. In addition to homerun, other types of baseball hits are used regularly.

Here are baseball hits to describe different types of approximate startup exit valuations:

  • Base Hit: $2 – $10 million
  • Double: $10 – $25 million
  • Triple: $25 – $100 million
  • Homerun: $100+ million

If the startup is in Silicon Valley multiple these by 10x otherwise this holds true for most parts of the country.

Sports metaphors are common in startup land and baseball hits are the most popular way to describe startup exits.

What else? Do you agree with these baseball hits to describe different types of exit valuations?

The Startup Toolkit’s Business Model Canvas

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Yesterday’s post on The 9 Building Blocks of a Business Model prompted a comment by Denis Baranov recommending The Startup Toolkit. I was first shown The Startup Toolkit and their Business Model Canvas a couple months ago at the TiE VISTA Conference by one of the attendees. The Business Model Canvas is the 9 building blocks of a business model broken out into a one page view facilitated by a point-and-click webapp.

I’m a fan of frameworks to think through and plan different strategies. Two popular one include the One Page Strategic Plan from Mastering the Rockefeller Habits and Porter’s Five Forces Framework for Analysis. There’s no silver bullet for thinking through strategy but these two combined with the Business Model Canvas provide a good starting point for different purposes.

What else? What do you think of the Business Model Canvas and what are your favorite strategy frameworks?

The 9 Building Blocks of a Business Model

Cover of "Business Model Generation: A Ha...

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A few months ago I ordered the book Business Model Generation on Amazon.com after seeing it mentioned on several blogs. Memorial Day weekend makes for the perfect time to dive into the book and I’m just getting started. Straight from the book, here are the nine building blocks of a business model:

  1. Customer Segments – An organization serves one or several customer segments.
  2. Value Propositions – It seeks to solve customer problems and satisfy customer needs with value propositions.
  3. Channels – Value propositions are delivered to customers through communication, distribution, and sales Channels.
  4. Customer Relationships – Customer relationships are established and maintained with each customer segment.
  5. Revenue Streams – Revenue streams result from value propositions successfully offered to customers.
  6. Key Resources – Key resources are the assets required to offer and deliver the previously described elements…
  7. Key Activities – …by performing a number of key activities.
  8. Key Partnerships – Some activities are outsourced and some resources are acquired outside the enterprise.
  9. Cost Structure – The business model elements result in the cost structure.

What else? Is there anything else you’d add to the building blocks of a business model?

Customer Acquisition is the Most Difficult Part of a Startup

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Most entrepreneurs, especially ones who aren’t technical, believe the technology and product development is the most difficult part of a startup. They’re wrong. Easily the most difficult part of a startup is customer acquisition. That’s right, the thing that is seemingly so obvious and critical to the success of the business is also the most over looked when evaluating business ideas. The number one reason businesses close down is that they run out of cash. Making customers happy and getting them to pay a fair amount for your service is the best way to build a company.

Here are a few thoughts around customer acquisition:

Customer acquisition truly is the most difficult part of a startup. Yes, startups require great markets, strong management teams, and good timing but if you can’t acquire customers you won’t be in business.

What else? Do you agree that customer acquisition is the most difficult part of a startup?

Prepare for Product Demo Failure

BEEN FISHING

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This afternoon I had the opportunity to listen to two entrepreneurs pitch their new product and company at my office. The entrepreneurs are talented software developers and have been building an app for the last four months. After some quick catching up I asked them to do a short product demo as I always want to see the technology as much as I want to learn about the business — I’m a product geek at heart.

As you might have guessed, the inevitable happened: the product demo failed due to our firewall blocking certain ports. Entrepreneurs should always prepare for product demo failure. Here are some tips for preparing for a product demo and if it fails:

  • Have screenshots of key app functionality ready to show in a simple PDF or Google Presentation
  • Bring handouts in the event the projector doesn’t work (yes, dead trees come in handy once in a while)
  • Don’t spend too much time trying to get the demo to work — the goal of a meeting is to develop interest for a next meeting so focus on building rapport
  • Apologize for the demo not working and make a note to follow-up with instructions on how they can test it on their own

Product demo failures are a part of entrepreneurship. Take the failure in stride and still make the most of the meeting.

What else? What are some other tips around product demos and product presentation failures?

Limit the Brain Damage Work in a Startup

Brain Damage (photo officielle du groupe)

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A friend of mine who’s been an entrepreneur for the last four years likes to refer to any of the stuff he doesn’t enjoy doing as brain damage. In his world, he doesn’t have back-office personnel support resulting in a quite a bit of brain damage. Most entrepreneurs have to deal with minutia that isn’t fun. The simplest test for the amount of brain damage work you have to do is to look back on your day and ask yourself what work energized me and what work sapped my energy. Work that takes energy from you is brain damage work.

Here’s some example brain damage work in a startup:

  • Taxes (need I say more…)
  • Basic infrastructure problems like the phones or internet going down
  • Government paperwork, licenses, fillings, etc
  • Letting employees go that aren’t working out (big relief when it’s done!)

My recommendation is to do what you can to limit the brain damage work in a startup so that you can focus on items that you enjoy.

What else? What are some other brain damage work items?