Raising Startup Valuation
Many entrepreneurs suffer from “information overload” and attempt to do too many things at one time. This can lead to a loss of focus and tasks taking even longer than expected.
While a team can certainly help reduce this workload, it’s important for founders to have a “mindset shift” and realize that a solid growth strategy focuses on independent pieces of the company at one time, keeping your resources from stretching too thin.
In the next few sections, we’re going to discuss several strategies your startup can utilize in order to grow your valuation as quickly as possible.
Remember, each of these strategies must be focused on independently to see the best results. Don’t allow your team to stretch itself too thin or get overwhelmed in the process.
1. Build a Wide Moat
Building a “wide moat” around your startup’s core products and services is absolutely essential if you want to command a large valuation.
When we refer to a “wide moat,” we mean a differentiator that acts as a barrier to entry into your industry. How easy is it for someone to replicate your process and start taking away your market share? What time period or resources would this effort require from your competitors?
The higher your startup’s barrier to entry, the better. A business that’s difficult to break into would have much fewer entrepreneurs attempting to break into the space, giving your company a higher valuation in the eyes of investors.
Your startup can use intellectual property such as patents, copyrights, and various trade secrets as differentiators that build your moat.
2. Show Investors Your Market Is Growing
Do you know the market share of your industry and how many customers are available in the space? Now go one layer deeper, asking yourself whether or not you know how quickly your market is growing year over year?
Even if your startup launches in a small market, showing investors that your industry is rapidly growing and gaining more customers at an increasing rate will both give them confidence and increase the price investors are willing to pay for your company.
Analyze and research your market continuously, and document your customer growth rates in detail. Showing investors the potential of your market in the future is a great way to boost the valuation of your startup.
3. Increase the Perceived Value of Your Startup
When it comes to value, there are always two sides to the coin: real value and perceived value.
Real value comes from intellectual property, the competitive landscape, market growth, company fundamentals, and the quality of your team. Perceived value, conversely, is purely based on psychological factors.
In reality, the perceived value of your startup is a significant factor in your valuation. How investors view your startup will directly affect what individuals or companies are willing to pay for a full acquisition of your business.
Your startup can begin to work on its perceived value by:
- Attracting media attention early on in the process
- Controlling the narrative around your brand proactively rather than reactively
- Wisely using social media to grow your online presence
- Avoiding over-promising and under-delivering (by under-promising and over-delivering)
4. Grow Revenues
The most important growth element that directly plays into your valuation is the revenue your company is currently bringing in each month.
Most acquisition multiples are based on monthly revenues or net profits, meaning that increasing your revenue and boosting your startup’s bottom line profits will result in the most significant multiple gains for your company.
Revenue growth should always be one of the most important factors your business focuses on each day.
In essence, business growth is the launching pad of your organization – be sure to recognize that and take the appropriate steps to grow your revenue at any point possible.
5. Build a Scalable Foundation
If your startup has the right foundation in place that’s built to scale, you’ll be able to grow faster than your competitors.
Scalability is, by definition, your company’s ability to accommodate fast growth without facing any disruptions and keeping your profit margins under control.
A great example of this is digital businesses that have automated large parts of their customer acquisition and onboarding processes. If the founders decide to scale rapidly, all they have to do is turn their acquisition systems up a notch and start attracting large numbers of customers.
This type of automated scalability is exceedingly attractive to investors and can help your startup command a higher acquisition multiple.
Before you begin going “all-out” and scaling your startup as high as it can go, it’s important to note that rapid growth may not be the ideal solution for a brand-new startup. Your business doesn’t need rapid growth in the very beginning, especially if you’re still figuring out product-market fit or surveying your customers in order to provide a better product or service.
There’s a time for building, a time for optimization, and a time to scale your business to the sky. As you continue to build your startup, remember to look at where your business is and where you want to go, working on making decisions to accommodate your current growth stage without stretching yourself and your team too far.