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I think people (and the founder) are focusing on yearly profits as their remuneration and comparing it to a salary... but the reality is you're creating a compa

I think people (and the founder) are focusing on yearly profits as their remuneration and comparing it to a salary... but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. In reality your net worth went up by over $1.5 million in the last year, in addition to earning 236k - that is the actual value you created for yourself in the last year and not the 236k you cashflowed. I find it redeeming that despite having a gift for development - software and hardware - the biggest factors affecting profitability and growth here are things that most MBAs would do in a business quite regularly (outsourcing design/packaging/fulfillment, streamlining costs, doing price elasticity experiments, polling customers and markets for product improvement). I enjoyed seeing the inverted perspective that product/engineering is straightforward and low risk but things like optimizing fulfillment and operating costs is a new exciting endeavor. One tip I suggest doing is leveraging google ads to figure out features that customers are willing to pay for before you build them... if they're clicking the ad they are searching for it and interested in buying it. Start a few very low cap campaigns calling out features you are thinking of building into the product, and see which one get's the most impressions and clicks per marketing dollar and focus on that. The added advantage is you know it will be easier to buy advertising for it once the feature is done.

dustingetz 3y ago
10x rev valuation is for high margin saas growing at 3x y/y in a massive TAM where incremental capital injection results in predictable rev growth
- tgtweak 3y ago
  10x ebit is not 10x rev - I think hardware startups that can demonstrate economies of scale and straight line growth on advertising + additional product segments and markets are catching very healthy valuations still - not saas levels but large saas companies are pushing way more than 15x ebit.
  - throwaway2037 3y ago
    Do you mean EBITDA? aka Earnings before interest, taxes, depreciation and amortization
Aerbil313 3y ago
> …but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. Muslim here. I think this is completely immoral and I don’t want to ever participate in stock market if/when I found a company. I want my business to be valued with the actual value it provides to people (the amount they are willing to pay me for my products), not the hypothetical future money it may potentially provide to rich people who gamble with their money and the economy.
- OJFord 3y ago
  What's the difference when the 'product' is the company itself? When a buyer comes along offering 7-15x the company's earnings for it, why is that not 'the actual value it provides' them?
  - Aerbil313 3y ago
    Company acquisition is possible without the existence of a stock market. What I’m objecting to is the latter.
    - kuresov 3y ago
      IPO/stock market was not mentioned anywhere in the post. It’s much more typical to be acquired than to go public.
      - Aerbil313 3y ago
        Sorry, you’re right. Confused the two for a second.
    - avarun 3y ago
      You're the only one that mentioned the stock market at all, so I would question if you know the difference you're alluding to here.
    - OJFord 3y ago
OJFord 3y ago
Advertise features you don't have and disappoint/infuriate those would-be users? Or are you suggesting a slightly less annoying 'coming soon' type landing page, where if it doesn't get enough traffic 'soon' just never comes?
- boarnoah 3y ago
  Wonder about this myself, have noticed with folks like Rob Walling and presumably others. They all seem to suggest testing market fit by essentially doing this for features, and in some cases soft launching websites prior to having anything ready at all! Seems risky if you are dipping your toes into something you do not have a deep understanding of the product market for. Anecdotally I've seen with video games (the communities tends to be very vocal and somewhat centralized?), where inexperienced developers promise things that are realistically way beyond the capabilities, or promise things too early based on their honeymoon period for rough implementations. Then suffer on the other end when they fail to meet roadmaps or delivery of features at all. It seems like an even worse situation with serious software with asks for larger amounts of money? Then again maybe this strategy can get away with it, because there is that lack of cohesive communities with some degree of group think who would get up in arms over bad promises?
  - hurflmurfl 3y ago
    The reason it won't really work for gamedev or complex software is that the risk of the business isn't really in the product-market fit, but rather in stellar execution. If your business idea is dependent on being able to do a complicated thing, then a POC or a demo might make more sense for testing the waters and seeing if there's any technical impediment to the idea
- tgtweak 3y ago
  on $10/day max spend you'll get 1-2 people that will visit the page, and you can put a "coming soon, leave an email and we'll let you know" then you can email them when it is deployed as well to recoup the adspend. If they're looking for a feature you don't have they're not really your customer today anyway. If they're looking for a feature that doesn't exist anywhere then they have no choice but to wait for it to be built.
koonsolo 3y ago
Sure, but the valuation doesn't buy you any food. In the end you need cashflow.
- chenxi9649 3y ago
  depends on what "in the end" means haha
  - coldtea 3y ago
    it means when the bills come in and are due
bad_good_guy 3y ago
Why should a company be assumed to be eventually sold? What the heck is that kind of perspective. The vast majority of small/medium companies are not sold - instead they provide regular income to their owners. This sounds to me like typical toxic silicon valley startup mindset.
- robertlagrant 3y ago
  > This sounds to me like typical toxic silicon valley startup mindset. I think this is naive cynicism, as it were. Lots of companies are started by people who eventually want to sell them, be it after 5 years or 50. Being biased against Silicon Valley won't give you a good handle on this stuff.
  - chinchilla2020 3y ago
    Not true at all. The local corner store, laundromat, and plumbing company are usually not something that can be sold easily. If they do, it takes years to find a buyer and they are getting a low sale price. Tech startups had high multipliers in the past 10 years thanks to dumb money, low interest rates, and lot of hope. Most of those things are drying up and many tech startups that had decent valuations are now worthless.
    - creer 3y ago
      > If they do, it takes years to find a buyer and they are getting a low sale price. Is this true of standard businesses like laundromat or plumbing? Or is it a matter of such businesses rarely being in a condition that makes a sale easy? If these are in a good condition accounting-wise for example, they should integrate readily and for a basic multiple of sales into one of the neighbors? What I have seen is unrealistic prices - and that's another matter.
  - BiteCode_dev 3y ago
    Ferrero, Mars, Ikea, Ikea and Valve prove that you can get very big and stay private. Not everyone wants to IPO, or sell to big player. You may want it to stay in the family, or protect the original culture. Maybe you found someone in your team that will be a great CEO. Maybe you like that life. You don't even need to big huge, look at 37 signal.
awhitby 3y ago
You're missing something. From the post: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k. and > Result: I worked 35-40 hours per week, a reduction from previous years, and traveled more than any previous year. This is a person who is effectively full-time CEO of this business and whose market salary is likely at least $236k. If they sold the business, the new owners would have to pay someone else to put in those 35 hours. Maybe the new owner could employ a less-skilled manager and pay them less, or maybe there's still lots of potential growth or room to cut costs, but that's all quite speculative: right now the business has a profit, and therefore a valuation, closer to zero.
- avinoth 3y ago
  Valuing a profit-generating business that's making $1m in revenue as zero is reductive. Valuation of business isn't necessarily determined by profits (perhaps for commodity businesses), It's just one of the metric. This is a business that has strong operations, product, assets, and IP, honestly quite surprised with this take. Also, a nit fwiw, you automatically assumed the entire profit of the business is the market salary for the person running this business
  - deleted 3y ago
    [deleted]
  - awhitby 3y ago
    I don't really disagree. It's a naive analysis, but ignoring the opportunity cost of the time the owners put into a business, which I was replying to, is even more naive, and yet an extremely common mistake small business people make.
  - gnicholas 3y ago
    We don't know that it is profit-generating, since the author doesn't take a salary. As for the assumption that the profit would be soaked up by the market salary for the founder, the fact that he's a former Google engineer or whatever is a pretty decent indication that this is true. I would agree that most people would take some job flexibility/autonomy in lieu of part of their bigco salary, but my guess is that this particular Xoogler would be making well more than $236k (including stock) if he had stayed at Google. EDIT: that doesn't mean he should have stayed at Google, just that his market salary would very likely soak up all of the profits this year. If he can keep up the growth (and ramp down his hours), then it would be clearer that the enterprise could throw of cash even after paying for all the labor.
coldtea 3y ago
If your company makes 50K/year profit (which as a bootstrapped founder is what you take home to live with), you haven't created half a million of net worth, you've just created a company that might or might not make it 2-3 years down the line, and which might not be that better than a salaried position from a "net worth creation" perspective.
holoduke 3y ago
No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.
- tgtweak 3y ago
  What market were they in? What did the growth and earnings look like?
- deleted 3y ago
  [deleted]
- titanomachy 3y ago
  Why sell a healthy growing $10m business for 4x earnings? Did you have debt to service, or just wanted to do something different, or some other reason?
  - gamepsys 3y ago
    At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. The company will probably under perform over time but you'll get more juice from the fruit.
    - mewpmewp2 3y ago
      With how fast tech is pacing there's no guarantee that this business wouldn't be outpaced by competitors, and so if you stay idly by and provide no innovation, the business might just fizzle out.
    - Aurornis 3y ago
      > At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. As many small business owners learn the hard way, it's nearly impossible to find someone capable of single-handedly operating a small startup who would rather operate your startup than their own startup. Frequently, you can find someone to take the role for a while. They might even perform well while you're training them up. Then they're likely to go off and start their own thing, which might come uncomfortably close to competing with you (while staying just outside the reach of noncompete agreements).
Andrex 3y ago
Valuation is only useful if you're looking for an exit, and maybe if you need to borrow a lot of debt (but if you're bootstrapped, that's not on the table). For lifestyle startups, profit is cold hard cash and valuation is a number in a spreadsheet.
paulddraper 3y ago
> creating a company that should be valued (and eventually sell) for 7-15X Earnings Only high-growth, high-margin businesses can get 7x+ earnings. Creating a sufficient level of growth to garner 7x valuation is very tough to do bootstrapped. --- EDIT: The only reason anyone gets a 10x etc valuation is because they're doubling+ year-over-year, and very likely they'll be 3x bigger in 18 months. So basically, that's a 3-4x valuation...of your probable revenue in a year and a half.
- deleted 3y ago
  [deleted]
- mateo411 3y ago
  I think you need to have ARR(annual recurring revenue) to have a multiplier like this. I think the company makes money when somebody buys the device, but that's it. It would also help to know the TAM(total market area). How big is the remote KVM market? That gives you an idea on how many devices it's possible to sell in a given year. Looks like the device sells for about $400.
- Aeolun 3y ago
  It wouldn’t be that bad if you are already substracting salaries right? Having a few years in which your earnings are zero due to purchase price is pretty doable if you start earning a cool 100k every year after (even better if it’s a growing business).
- rsanek 3y ago
  > Only high-growth, high-margin businesses can get 7x+ earnings Not really, the S&P 500's P/E multiple has historically been at around 15x and now is somewhere around 30x [0]. And with that, we're talking about large, mature businesses that are not growing super fast -- more like 6-7% annualized, post-inflation [1]. [0] https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio [1] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average...
  - paulddraper 3y ago
abdullahkhalids 3y ago
Any historians here who can comment on when people first started selling their businesses? And when did the notion that you build a business to sell it, first emerge?
interstice 3y ago
This is encouraging as someone who is very comfortable with the development side of my studio but still finds the business side daunting at times
jacquesm 3y ago
Those multiples only work if you are growing so fast that you start to become a threat to an incumbent. Otherwise, you can halve that easily, it all depends on what you do as a business and how hard it is to copy what you are doing. High multiples require strong growth, strong IP and a shortcut compared to redevelopment.
sirspacey 3y ago
Great advice here! The math on multiple needs a revision for 2024. SalesForce and Atlassian are valued at 6x and growing faster than ever with over $1B in revenue. No one else is getting a better multiple than that in SaaS right now without a very eager buyer. Enterprise Value is great in theory. In practice once you get to enough free cash flow you are really just making the decision on whether to take X years of profits in advance for selling all future profits. Even at 2x-3x, it comes out to “I’ve made enough money/I’m tired, I’m gonna cash out and pay a big tax bill.” I’d rather make a business that is run by the team and stay with it.
- matchagaucho 3y ago
  QSBS equity ownership is common amongst US bootstrapped businesses; which can change the tax concerns upon sale.
hankchinaski 3y ago
more like 3.5/4x sales for a small saas not certanly 7-15x
- rsanek 3y ago
  not relative to sales, relative to earnings
opportune 3y ago
Not everybody wants to sell their startup though. Accessing that liquidity without selling can be very very risky. Also, small companies like this can’t command big premiums because too much operational/institutional knowledge is held by the owners, so a lot of that “profit” is really more like a wage for the founder. I’m in the infancy of a bootstrapped company while witnessing the general enshittification of all these formerly treated VC backed companies as they prepare for /adjust to being public companies. I also recall many decent products like Quora (yes there was a period where it was actually good) go to shit and fail chasing $$. I feel like the culture is shifting for new founders and a lot us want to aim for sustainable businesses that deliver real value rather than VC moonshots that say yes to everything that makes them more money. I think “lifestyle” business carries negative connotations and bootstrapping/roof shots don’t capture this mindset yet. For me personally I guess it’s like, I’d rather have a $100m business that does cool shit and is focused on doing one thing, than be forced into chasing growth at all costs in all directions to get a potentially much bigger exit. If I had such an exit I’d draw it down at a sustainable rate anyway that ends up not being different from the earnings of a private company of similar value. I guess with similar luck and results maybe I could be a billionaire instead of a hundred millionaire, but idk if that really matters, and I’d then get the typical SV meaningless ennui while being glad to leave the shitshow I created before it got even shitter. Running something I’m proud of for the long term seems like a more meaningful and rewarding way to spend my time and it can actually make the world better even if it doesn’t capture as much of that value. Like, what if the dominant social media company had refused to serve ads and optimize for watch time? What if major cloud providers had a cohesive vision instead of cobbling together every stupid thing a $100mm spend customer wanted? What if YouTube could serve recommendations based on similarity/enjoyment? They could still be major successful companies. But selling your company, taking on investors, and maybe even lending against your equity threatens to destroy that.
nubela 3y ago
It is in my experience that not all businesses can be sold.
al_borland 3y ago
>you're creating a company that should be valued (and eventually sell) for 7-15X Earnings Why should an exit be the primary goal? There is nothing wrong with starting a business with the intent of continuing to run and own that business. This should be normal.
- entangledqubit 3y ago
  For some I suspect that it's not the primary goal, but when some investors pull up with an offer in that range it seems irrational not to take it.
ozim 3y ago
Problem with valuations is that there has to be a buyer for that 7-15x. There is a lot of businesses that are not sellable because “owner is the business” and then comparing to normal job makes sense, because that is other realistic alternative.

dustingetz 3y ago

10x rev valuation is for high margin saas growing at 3x y/y in a massive TAM where incremental capital injection results in predictable rev growth

tgtweak 3y ago
10x ebit is not 10x rev - I think hardware startups that can demonstrate economies of scale and straight line growth on advertising + additional product segments and markets are catching very healthy valuations still - not saas levels but large saas companies are pushing way more than 15x ebit.
- throwaway2037 3y ago
  Do you mean EBITDA? aka Earnings before interest, taxes, depreciation and amortization

Aerbil313 3y ago

> …but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. Muslim here. I think this is completely immoral and I don’t want to ever participate in stock market if/when I found a company. I want my business to be valued with the actual value it provides to people (the amount they are willing to pay me for my products), not the hypothetical future money it may potentially provide to rich people who gamble with their money and the economy.

OJFord 3y ago
What's the difference when the 'product' is the company itself? When a buyer comes along offering 7-15x the company's earnings for it, why is that not 'the actual value it provides' them?
- Aerbil313 3y ago
  Company acquisition is possible without the existence of a stock market. What I’m objecting to is the latter.
  - kuresov 3y ago
    IPO/stock market was not mentioned anywhere in the post. It’s much more typical to be acquired than to go public.
    - Aerbil313 3y ago
      Sorry, you’re right. Confused the two for a second.
  - avarun 3y ago
    You're the only one that mentioned the stock market at all, so I would question if you know the difference you're alluding to here.
  - OJFord 3y ago

OJFord 3y ago

Advertise features you don't have and disappoint/infuriate those would-be users? Or are you suggesting a slightly less annoying 'coming soon' type landing page, where if it doesn't get enough traffic 'soon' just never comes?

boarnoah 3y ago
Wonder about this myself, have noticed with folks like Rob Walling and presumably others. They all seem to suggest testing market fit by essentially doing this for features, and in some cases soft launching websites prior to having anything ready at all! Seems risky if you are dipping your toes into something you do not have a deep understanding of the product market for. Anecdotally I've seen with video games (the communities tends to be very vocal and somewhat centralized?), where inexperienced developers promise things that are realistically way beyond the capabilities, or promise things too early based on their honeymoon period for rough implementations. Then suffer on the other end when they fail to meet roadmaps or delivery of features at all. It seems like an even worse situation with serious software with asks for larger amounts of money? Then again maybe this strategy can get away with it, because there is that lack of cohesive communities with some degree of group think who would get up in arms over bad promises?
- hurflmurfl 3y ago
  The reason it won't really work for gamedev or complex software is that the risk of the business isn't really in the product-market fit, but rather in stellar execution. If your business idea is dependent on being able to do a complicated thing, then a POC or a demo might make more sense for testing the waters and seeing if there's any technical impediment to the idea
tgtweak 3y ago
on $10/day max spend you'll get 1-2 people that will visit the page, and you can put a "coming soon, leave an email and we'll let you know" then you can email them when it is deployed as well to recoup the adspend. If they're looking for a feature you don't have they're not really your customer today anyway. If they're looking for a feature that doesn't exist anywhere then they have no choice but to wait for it to be built.

koonsolo 3y ago

Sure, but the valuation doesn't buy you any food. In the end you need cashflow.

chenxi9649 3y ago
depends on what "in the end" means haha
- coldtea 3y ago
  it means when the bills come in and are due

bad_good_guy 3y ago

Why should a company be assumed to be eventually sold? What the heck is that kind of perspective. The vast majority of small/medium companies are not sold - instead they provide regular income to their owners. This sounds to me like typical toxic silicon valley startup mindset.

robertlagrant 3y ago
> This sounds to me like typical toxic silicon valley startup mindset. I think this is naive cynicism, as it were. Lots of companies are started by people who eventually want to sell them, be it after 5 years or 50. Being biased against Silicon Valley won't give you a good handle on this stuff.
- chinchilla2020 3y ago
  Not true at all. The local corner store, laundromat, and plumbing company are usually not something that can be sold easily. If they do, it takes years to find a buyer and they are getting a low sale price. Tech startups had high multipliers in the past 10 years thanks to dumb money, low interest rates, and lot of hope. Most of those things are drying up and many tech startups that had decent valuations are now worthless.
  - creer 3y ago
    > If they do, it takes years to find a buyer and they are getting a low sale price. Is this true of standard businesses like laundromat or plumbing? Or is it a matter of such businesses rarely being in a condition that makes a sale easy? If these are in a good condition accounting-wise for example, they should integrate readily and for a basic multiple of sales into one of the neighbors? What I have seen is unrealistic prices - and that's another matter.
- BiteCode_dev 3y ago
  Ferrero, Mars, Ikea, Ikea and Valve prove that you can get very big and stay private. Not everyone wants to IPO, or sell to big player. You may want it to stay in the family, or protect the original culture. Maybe you found someone in your team that will be a great CEO. Maybe you like that life. You don't even need to big huge, look at 37 signal.

awhitby 3y ago

You're missing something. From the post: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k. and > Result: I worked 35-40 hours per week, a reduction from previous years, and traveled more than any previous year. This is a person who is effectively full-time CEO of this business and whose market salary is likely at least $236k. If they sold the business, the new owners would have to pay someone else to put in those 35 hours. Maybe the new owner could employ a less-skilled manager and pay them less, or maybe there's still lots of potential growth or room to cut costs, but that's all quite speculative: right now the business has a profit, and therefore a valuation, closer to zero.

avinoth 3y ago
Valuing a profit-generating business that's making $1m in revenue as zero is reductive. Valuation of business isn't necessarily determined by profits (perhaps for commodity businesses), It's just one of the metric. This is a business that has strong operations, product, assets, and IP, honestly quite surprised with this take. Also, a nit fwiw, you automatically assumed the entire profit of the business is the market salary for the person running this business
- deleted 3y ago
  [deleted]
- awhitby 3y ago
  I don't really disagree. It's a naive analysis, but ignoring the opportunity cost of the time the owners put into a business, which I was replying to, is even more naive, and yet an extremely common mistake small business people make.
- gnicholas 3y ago
  We don't know that it is profit-generating, since the author doesn't take a salary. As for the assumption that the profit would be soaked up by the market salary for the founder, the fact that he's a former Google engineer or whatever is a pretty decent indication that this is true. I would agree that most people would take some job flexibility/autonomy in lieu of part of their bigco salary, but my guess is that this particular Xoogler would be making well more than $236k (including stock) if he had stayed at Google. EDIT: that doesn't mean he should have stayed at Google, just that his market salary would very likely soak up all of the profits this year. If he can keep up the growth (and ramp down his hours), then it would be clearer that the enterprise could throw of cash even after paying for all the labor.

coldtea 3y ago

If your company makes 50K/year profit (which as a bootstrapped founder is what you take home to live with), you haven't created half a million of net worth, you've just created a company that might or might not make it 2-3 years down the line, and which might not be that better than a salaried position from a "net worth creation" perspective.

holoduke 3y ago

No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.

tgtweak 3y ago
What market were they in? What did the growth and earnings look like?
deleted 3y ago
[deleted]
titanomachy 3y ago
Why sell a healthy growing $10m business for 4x earnings? Did you have debt to service, or just wanted to do something different, or some other reason?
- gamepsys 3y ago
  At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. The company will probably under perform over time but you'll get more juice from the fruit.
  - mewpmewp2 3y ago
    With how fast tech is pacing there's no guarantee that this business wouldn't be outpaced by competitors, and so if you stay idly by and provide no innovation, the business might just fizzle out.
  - Aurornis 3y ago
    > At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. As many small business owners learn the hard way, it's nearly impossible to find someone capable of single-handedly operating a small startup who would rather operate your startup than their own startup. Frequently, you can find someone to take the role for a while. They might even perform well while you're training them up. Then they're likely to go off and start their own thing, which might come uncomfortably close to competing with you (while staying just outside the reach of noncompete agreements).

Andrex 3y ago

Valuation is only useful if you're looking for an exit, and maybe if you need to borrow a lot of debt (but if you're bootstrapped, that's not on the table). For lifestyle startups, profit is cold hard cash and valuation is a number in a spreadsheet.

paulddraper 3y ago

> creating a company that should be valued (and eventually sell) for 7-15X Earnings Only high-growth, high-margin businesses can get 7x+ earnings. Creating a sufficient level of growth to garner 7x valuation is very tough to do bootstrapped. --- EDIT: The only reason anyone gets a 10x etc valuation is because they're doubling+ year-over-year, and very likely they'll be 3x bigger in 18 months. So basically, that's a 3-4x valuation...of your probable revenue in a year and a half.

deleted 3y ago
[deleted]
mateo411 3y ago
I think you need to have ARR(annual recurring revenue) to have a multiplier like this. I think the company makes money when somebody buys the device, but that's it. It would also help to know the TAM(total market area). How big is the remote KVM market? That gives you an idea on how many devices it's possible to sell in a given year. Looks like the device sells for about $400.
Aeolun 3y ago
It wouldn’t be that bad if you are already substracting salaries right? Having a few years in which your earnings are zero due to purchase price is pretty doable if you start earning a cool 100k every year after (even better if it’s a growing business).
rsanek 3y ago
> Only high-growth, high-margin businesses can get 7x+ earnings Not really, the S&P 500's P/E multiple has historically been at around 15x and now is somewhere around 30x [0]. And with that, we're talking about large, mature businesses that are not growing super fast -- more like 6-7% annualized, post-inflation [1]. [0] https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio [1] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average...
- paulddraper 3y ago

abdullahkhalids 3y ago

Any historians here who can comment on when people first started selling their businesses? And when did the notion that you build a business to sell it, first emerge?

interstice 3y ago

This is encouraging as someone who is very comfortable with the development side of my studio but still finds the business side daunting at times

jacquesm 3y ago

Those multiples only work if you are growing so fast that you start to become a threat to an incumbent. Otherwise, you can halve that easily, it all depends on what you do as a business and how hard it is to copy what you are doing. High multiples require strong growth, strong IP and a shortcut compared to redevelopment.

sirspacey 3y ago

Great advice here! The math on multiple needs a revision for 2024. SalesForce and Atlassian are valued at 6x and growing faster than ever with over $1B in revenue. No one else is getting a better multiple than that in SaaS right now without a very eager buyer. Enterprise Value is great in theory. In practice once you get to enough free cash flow you are really just making the decision on whether to take X years of profits in advance for selling all future profits. Even at 2x-3x, it comes out to “I’ve made enough money/I’m tired, I’m gonna cash out and pay a big tax bill.” I’d rather make a business that is run by the team and stay with it.

matchagaucho 3y ago
QSBS equity ownership is common amongst US bootstrapped businesses; which can change the tax concerns upon sale.

hankchinaski 3y ago

more like 3.5/4x sales for a small saas not certanly 7-15x

rsanek 3y ago
not relative to sales, relative to earnings

opportune 3y ago

Not everybody wants to sell their startup though. Accessing that liquidity without selling can be very very risky. Also, small companies like this can’t command big premiums because too much operational/institutional knowledge is held by the owners, so a lot of that “profit” is really more like a wage for the founder. I’m in the infancy of a bootstrapped company while witnessing the general enshittification of all these formerly treated VC backed companies as they prepare for /adjust to being public companies. I also recall many decent products like Quora (yes there was a period where it was actually good) go to shit and fail chasing $$. I feel like the culture is shifting for new founders and a lot us want to aim for sustainable businesses that deliver real value rather than VC moonshots that say yes to everything that makes them more money. I think “lifestyle” business carries negative connotations and bootstrapping/roof shots don’t capture this mindset yet. For me personally I guess it’s like, I’d rather have a $100m business that does cool shit and is focused on doing one thing, than be forced into chasing growth at all costs in all directions to get a potentially much bigger exit. If I had such an exit I’d draw it down at a sustainable rate anyway that ends up not being different from the earnings of a private company of similar value. I guess with similar luck and results maybe I could be a billionaire instead of a hundred millionaire, but idk if that really matters, and I’d then get the typical SV meaningless ennui while being glad to leave the shitshow I created before it got even shitter. Running something I’m proud of for the long term seems like a more meaningful and rewarding way to spend my time and it can actually make the world better even if it doesn’t capture as much of that value. Like, what if the dominant social media company had refused to serve ads and optimize for watch time? What if major cloud providers had a cohesive vision instead of cobbling together every stupid thing a $100mm spend customer wanted? What if YouTube could serve recommendations based on similarity/enjoyment? They could still be major successful companies. But selling your company, taking on investors, and maybe even lending against your equity threatens to destroy that.

nubela 3y ago

It is in my experience that not all businesses can be sold.

al_borland 3y ago

>you're creating a company that should be valued (and eventually sell) for 7-15X Earnings Why should an exit be the primary goal? There is nothing wrong with starting a business with the intent of continuing to run and own that business. This should be normal.

entangledqubit 3y ago
For some I suspect that it's not the primary goal, but when some investors pull up with an offer in that range it seems irrational not to take it.

ozim 3y ago

Problem with valuations is that there has to be a buyer for that 7-15x. There is a lot of businesses that are not sellable because “owner is the business” and then comparing to normal job makes sense, because that is other realistic alternative.