The whole purpose of being the CEO and/or Founder of a high growth software company is to benefit from the growth in value you’ve created. While it’s possible to build a big company and create a “lifestyle” business, as I call it, where you have a comfortable living from the profits you generate, that option becomes less viable as more people, from employees to investors, have an economic interest in the business’s outcome. All of them are expecting you to guide the business to an exit.The expectation on everyone’s part is that the company will have a “liquidity event” within 5-10 years of founding. Read more…
It’s very challenging to start and grow an idea into a successful company. The odds are stacked against you. A recent FRACTL study of over 200 company post mortems found that the #1 reason most often cited by founders, even more often than running out of cash, was that their business model was not viable.
The research shows that we have good ideas, but bad businesses. Read more…
Something new is coming and it will affect your privately held business, whether you want it to or not.
Every CEO will at one time or another ask the question, “what’s my company worth?”
Wouldn’t it be great if there was a a simple, trustworthy way to understand and unlock that value.
Now there is.
Think Zillow or your FICO score but for private companies.
Marriage is often used to describe the union of two companies, everything from dating to consummation. I recently gave my daughter away at her wedding, which in large part explains the big gap between my last post and this, and it made me think about the union of two companies.
How do you know if it’s the right deal? How do you know if it’s the right company? Read more…
Often a big company will come into your market and acquire one of your competitors for what seems like a lot of money. One of the first thoughts that goes through your mind as the CEO is, “Why not my company?”
It shouldn’t really matter if an acquirer buys your competitor because you’re focused on building your company and developing your product, except it means that you weren’t acquired. Not only weren’t you acquired but your competition just got a big financial backer and a lot more resources.
I’m not sure which is worse actually – To be in the conversation but know that Big Co. picked someone else or if you weren’t even being considered by Big Co.
Hopefully you were at least in the conversation, meaning while Big Co. was looking at the various companies in a particular space of interest they were at least talking to you, too.
But maybe they weren’t. Read more…
Running an insanely fast-growing company is a little like playing a game of Whac-A-Mole. Running a growing company has a little art to it and lots of guesswork. A system that worked for signing up and registering customers last week, for example, might not work next month when the number of customers has significantly increased. As a CEO your job, essentially, is to keep whacking the mole. Read more…
The single most important factor in determining the valuation of a software company is the revenue growth rate.
In real estate what matters is location, location, location. In software it’s growth, growth, and growth.
Software companies are primarily valued based on revenue multiples. What drives the revenue multiple is expectations for future revenue growth and related profitability, which typically focuses on gross margins, not bottom line profitability.
While valuation for both traditional and Software as a Service (“SaaS”) models are based on the same concepts, over the last few years SaaS companies have been growing faster and commanding higher revenue multiples. Read more…