Breakout valuations are achieved when a business is valued based on how it makes people feel and its future potential, not just what it’s done in the past.
The nine components of a breakout valuation are confidence, vision, curiosity, people, communications, cash management, financial forecasting, capital strategy, and business design. Whether or not you sell your company, business owners who optimize in these areas, position themselves to capture a breakout valuation.
This caffeinated contribution is a special adaptation from Breakout Valuation, which is the #1 New Release in Venture Capital and was written by my good friend, Patrick E. Donohue. Patrick is an entrepreneur, mentor, advisor, investor, valuation expert, and community builder who offers unique insights into the dynamics of money and business.
While you’re running a company, breakout valuations make everything easier. It attracts talented employees and quality customers. This expands your market position, makes financial capital less expensive, and invites vendors to extend better terms based on your surging trajectory.
Knowing what your ownership of the business is worth helps you make important financial decisions and becomes increasingly important as a business matures. If a business grows to the point where it becomes valuable to acquire, academic and finance professionals attempt to make valuation objective, but the complexity of each transaction makes valuation subjective in the end. Along with all the objective data, valuation is highly influenced by the environment, relationship, and personal views of the participants in a transaction. Knowing how investors and lenders use objective valuation tactics is crucial, but understanding the potential value of the business, articulating it to potential partners, and having them buy into the vision will arm you with an advantage to get what you want—a breakout valuation.
Breakout valuations are not aspirational. They emerge from what you are doing right now. It’s all about being clear with your mission and vision. It’s knowing your numbers and how everything comes together through a shared mindset, communication, and workflow. The pursuit toward a breakout valuation compounds, requiring attention today, and every day moving forward. This aggregates understanding and builds confidence. When the day comes to part with some or all of your business, the confidence from a breakout valuation will maximize the payout or deliver assurance in walking away from the deal.
What are we doing today to support our goals for tomorrow?