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Company valuations can be a sticking point between buyers and sellers. What components do you look at?
The first thing I look at is is people not numbers. Date me before you marry me. Understand the people and culture of the organization. Then you look at financials. First, we look at revenue stream. Not the total revenue but how much is recurring? How much is professional services? How much is hardware? Is the recurring revenue a block of hours or a recurring service? Is it delivered remotely or on a people model? We have different criteria against each of the three.
Then we look at earnings. How much has the company brought to the bottom line? If it is profitable or if it isn't, what can you bring to make it better? Probably the last thing is the sales model. Is there really a sales model? Every company today says we're here today but our growth is this. If you think you're going to grow 60 percent, how will you get there? We look at discipline of the sales model.
What's your best advice for entrepreneurs today?
Start your company as though you want to become a public company. That implies a discipline structure and metric management. Even though that's just a dream for most people, start with that mental concept. Second, I'd tell them to hire their first three people very carefully. That sets the culture. If you were looking to hire 60 to 80 people at one time, you'd have a mix-match of cultures. The third is focus. You can't be all things to all people without failing. In the early days we all do it. It's a natural tendency [to chase all revenue]. You can always move along a little but not too far.
Next, don't be afraid to tear up your business plan and start up again. When I started my first business, we probably did that to the business plan six or seven times over the course of the first three years. It was a new industry and we didn't understand it. I was never afraid to say we learned more, this is the change we need to make.