A recent talk from former Dragon, Brett Wilson, at a Start-up Canada event during global entrepreneurship week has got  me thinking more about “the valuation of a company”, particularly a start-up. In this post I’ve jotted down  some thoughts that have been circling my mind.

You walk into the meeting room and ready to pitch…

Before that, here are a couple of things to consider when valuing your company:

1) Numbers (projections) are subjective
2) Know your value proposition, it is as important as the product/service itself

In this post I want to demonstrate how projections, per-forma statements, and forecasts are just predictions and subjective ones. In addition, rather than discussing valuing a company based on assets, sales, or market size (potential), I’d like to discuss the influences of strategy and value proposition.

Firstly, numbers – the following is a recent news story, demonstrating how even large, established company’s can miss their projections:

In April, upscale fashion company, Burberry, took control of their beauty line, as it was previous licensed out. As a result, they now posses full-control over their products; however, it also has added to their costs – marketing expenses added a heavy weight to their financials – they’ve realized that their marketing costs have doubled. This new strategic direction has been a costly one (at least short-term) and they’ve felt it hit their bottom-line. While they projected sales for their beauty division to reach 25 million pounds, they only earned 10 million, less than half.

The valuation of a company is partly based on projections; the above example is a great example which allows us to see how numbers too can be subjective. The overall picture is required for crafting strategy. Had the demand, current customer knowledge of the beauty line been measured, and need and costs of marketing been considered, would the projection of 25 million pounds been closer to the actual figures? If so, would Burberry have decided to take full-control or continue licensing?

In addition to the product/service itself, strategy and value proposition are key influencers in the success of the business.

Value Proposition:

Value proposition is the unique selling point, which illustrate why the consumer will benefit from becoming a customer, seeing the value in what you are selling.
While at a Start-up Canada event, I had the opportunity to chat with a fellow attendee, Omar, co-founder of YP-it (http://www.yp-it.com). Omar was telling my about his colleague’s, the founder of Canada’s beloved coffeeshop, Second Cup, story. In the 70’s, if you wanted a coffee, you had two choices – the generic cafe coffee and a branded one, both were “vanilla”. Soon after, Second Cup was born (before Starbucks), to provide hard-working folks with a treat, a gourmet hot beverage – priced higher than the other two available, but the value proposition (a unique selling point, which illustrates why the consumer should become a customer) allowed them to do so. They created a market through a vision.

Any recent companies’ value proposition catch your attention lately?

Esha Abrol © November 2013