Confidence Archives - Page 2 of 2

Breakout Valuation

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.

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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.

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What are we doing today to support our goals for tomorrow?

The Idea Machine

Ideas that you can wrap a business around do not come naturally for everyone. If you’re struggling to generate realistic ideas, you must first learn how to flex your mind. With practice, you’ll soon be firing good, bad, big, small, crazy, and enlightened ideas into the world. You’ll end up with plenty to choose from and even more to give others. In fact, as you become an idea machine, the hard part will be deciding which ideas to execute around. Let’s hit the gym.

If you don’t know where to start, here’s a simple exercise that will train your brain to become an idea machine. Pick up a pocket-sized notebook that inspires you to write within it the moment you think of an idea. Every day, write five ideas in this small notebook. No less, but more is fine. See how long you can maintain this daily activity. After only a few days, you will have transformed it into a personal idea book.

The ideas need not be world changing; the important part is to write them down the moment they spark. It’s tempting to use technology, like an app on your phone, but pen on paper provides freedom to practice in more creative ways. Go old school and give yourself the blank canvas needed to explore any type of idea. As you thicken your idea book, don’t worry about how good or bad each idea is. Dump them on the page and focus your energy on maintaining the daily habit. If you need a few extra ideas to achieve your daily goal, spend a focused moment to think and jot them all down at once. No matter how you reach your daily goal, the momentum of your consistency will soon surprise you. The longer you maintain this daily routine, the more you’ll feel your mind flexing in new ways.

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With these physical notebooks, I must warn you to check your pockets before you do laundry. I once had a solid idea book that went through the wash. I was able to transfer some of the thoughts into a new idea book, but there was still a sense of loss. Having space to scribble is key, but it’s smart to back things up digitally as well.

You can also add wrinkles of complexity to continue challenging yourself. Focus on a theme. To give this a try, think about ideas for a specific person, product, service or market and imagine ways to improve it.

The pure quantity of ideas you’ll amass will result in many worth forgetting. That’s the point. Amongst all the clutter, you’ll find yourself returning to a few sharp ideas. These are the treasures to spend more time exploring.

This sounds easy, but like working out after a New Year’s resolution, it’s easy to burn out. Here’s what will happen. You’ll track some ideas for a week. Soon after, you’ll start mentally sidelining ideas. You’ll document them all at once for a few more days to maintain your streak. This will feel efficient, but then you’ll miss a day or two. Before you know it, your idea book sits on the shelf collecting dust. When this happens, don’t be hard on yourself. Even a little time committed to this exercise can spark a more creative mindset.

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It’s crazy how quickly the mental effects are felt from this simple exercise. Whenever I activate this practice, I love how the abundance of ideas lead to things I can share with fellow founders.