How To Increase The Value Of A Startup?

How To Increase The Value Of A Startup? - Introduction

When you open up a new business, you are always unsure about the success rate of the business. The startup time of the business is the high time that analyzes the future success rate of the business. Any decision that is made in the startup period of the business has an effect on its future growth. It is a fact that nobody can deny.

However, this is also the reason that startups can be prone to many risks, and one of the greatest risks is going bankrupt before you even know it. And believe me, no one wants their startup to go up in flames in the initial months. And that is why every step you take needs to be calculated and planned to a fool-proof finesse that makes the base of your business firm and long-lasting. Thus, you need to start ASAP!

What Is The Importance Of Startup Valuation

Valuation is the most crucial step if you want continuous growth for your business. As in the previous book, “How To Value Your Startup,” we have discussed the perfect method of valuing your startup, and that is by the carefully engineered system of Equitest. Likewise, it is necessary to do the valuation repeatedly to know the success rate of your organization.

The growth of the startup cannot just be measured by profits or revenue, as there are many factors that affect the value of your startup. You need to ensure that you are doing every possible thing to make sure that you are going in the right direction and not contradict what you should be doing for your startup. Valuating the startup is the best way to keep your business and your startup in check.

It will help you make the required changes and risks that come with leading a startup. At the same time, you will know on which level you are standing among your competitors. This would help you improve your startup in the best way possible.

Factors That Affect The Value Of A Startup

As we have already mentioned the importance of valuing your startup, an increased startup value directly means that you are excelling in your startup, and your continuous struggle will surely bear fruit. However, how can you ensure that your startup value is increasing?

Luckily, we have compiled the most effective factors that will change the future for your startup and taking care of these factors will surely increase the value of your startup:

1.       Burn rate Of The Startup

The burn rate is the rate at which a new corporation uses up its venture capital that will finance overhead before generating obvious cash movement from operations. As the burn rate is lower, the company is expected to survive for a longer period, and therefore the firm's value is expected to be higher.

This phenomenon can be understood by a simple example. If your monthly expenditure of the startup is around 5000 USD and your bank account holds 5000 USD, you are more likely to go bankrupt in one month. However, if the monthly expenditure of your startup is 5000 USD and you have 60,000 USD, you are likely to go bankrupt in one year, even if you are making no profit from your startup.

Burn rate is especially an issue for startup companies that are typically unearnable in their early stages and are usually in high-growth industries. It can take years for a corporation that will generate earn from its sales or revenue and, as a result, will need an adequate supply of cash on hand that will meet expenses. Thus, you need to keep track of your burn rate to make sure that your business keeps on running without any obstruction.

2.       Business Idea

The business idea is the thing that you most commonly decide before starting the business. However, new ideas can be incorporated into the startup even after it is in function. However, before implementing a business idea to your startup, you should analyze whether your business idea is up to par or not. And for that, you need to check whether the business idea is scalable or not. Scalability is a business idea that allows it to grow at the exponential level needed to evolve into a large business. A scalable business will increase its revenue from $50 a week to $100 per week without doubling its costs. If the idea is progressing as a scalable one, it is worth pursuing.

Moreover, your business idea should be sustainable, and you need to check whether your idea has a multi-year plan. Great business ideas need to be sustainable in two regards which means that they should have access to resources and a vision. If you have sufficient resources to continue your business and if you have planned for the future, you are good to go, and your startup value will increase gradually.

3.       Capital Turnover Value

The capital turnover value is a thing that should not be avoided while increasing the value of a startup. The capital turnover rate should always be 1.5:1 or 2:1 if you want your startup value to increase continuously. For that, you need to have an appreciable increase in sales and the profit you make with the sales.

Once the turnover value is greater, your capital and stakeholders will be ready to invest more into the company and will back you with risks and other steps that you take for your business.

4.       Brand Name

You might think that brand name does not affect the success of your startup, but that thought is completely wrong. Your brand name is the thing that represents who you are and what you do with your products. A client will never be attracted to a common brand name that has no thought to it.

As your brand name is your brand identity and your representation, it should be top-notch to attract stakeholders, clients, and customers as much as possible.

5.       Switching Prices

“As a rule, investors prefer collaborating with management teams who are flexible and willing to refine their business model or strategy to reduce risk and provide successful exit strategy to investors.” (Adams, 2018) You need to show your investors that you are flexible in your business and you are ready to make the necessary rusks to increase the value of the startup.

Switching prices is one of the safest ways to increase the value of your startup. If you open your startup and try to sell products at high prices, it is obvious that people will not buy them. However, if you start with a lower price and gradually increase the price as the product becomes popular, you will have more profit and thus a higher value for your startup.

6.       Legal Protection

Legal protection is a debatable thing that can either make your startup completely protected and fool-proof, or it can be a burden that will cost you extra money. However, if you have a deal that involves protection from competitors and it is available at a lower price, you should take the opportunity and protect yourself from the evident competitors in the market that offer the same products as you.

7.       Cost Advantages

What if you do not have the means to lower the prices for the customers? How will you gradually increase profits?

The method to do this is by offering more at the same price as the competitors. If you are selling something with the same market price as the others, try providing them with more quantity and quality than the other brands, and it will become your strength.

8.       Choosing The Strategy According To The Startup Type

Can the same strategy as your competitors work for you too? No!

You need to know that the type of startup affects the revenue you make and the techniques you adopt to make your startup successful.

“Small- and medium-sized enterprises (SMEs) are considered to have potential innovation capabilities and can create new market opportunities.” (Du and Cai, 2020) On the other hand, larger startups are riskier and need other strategies to improve. You need to evaluate the strategy you use according to the startup type. Only then will you be able to increase the value of your startup.

9.       SMART Monthly Goals

What about the goals of your startup? How can your goals be the right thing for your startup, and how can you ensure that the goals you are pursuing are the correct type?

You can structure your goals to be “SMART.” That can be done by checking the following features in your goals:

• Specific
• Measurable
• Achievable
• Realistic
• Time-Bound

Tips That You Should Follow

Here are a few additional tips that might help you increase your startup value:

1.       Create Higher Margins

The more margins you leave in your calculations, the safer you are. If you have low margins between your plans, it is possible that your plan will be prone to more risks and more damages.

2.       Efficient Advertisements

Efficient advertisements can lead to better sales. It goes without saying that advertisement is the way to a brand's marketing value and identity. You need an advertisement to convey your message and to put your products in front of the world.

3.       Sustainable Business Model

“A business model articulates the logic and provides data and other evidence that demonstrates how a business creates and delivers value to customers. It also outlines the architecture of revenues, costs, and profits associated with the business enterprise delivering that value.” (J. Teece, 2010) If your business model is sustainable and achievable, it can lead your startup to success, and the value of your startup will increase tremendously.

4.       Effective Team Selection

In software startups, the founder's average age is 40, and younger founders aren't uncommon. In contrast, in IT industries, such as social media, the average age is much lower.

These statistics are for all founders. But what about the most successful startups? The companies with the highest values? Looking at most successful firms, the average founder age tends to be middle-aged, not young.

Why is the relative advantage of middle-aged entrepreneurs that yields the highest value? The simple answer is work experience. Even the most talented younger founder has no work experience. Founders with at least three years of prior work experience in the same narrow industry as their startup are 85% more likely to launch a highly successful startup.

The conclusion is that if the founders' average is 45 years, the venture's value is the highest.

Perfect Pitch For VC

“Venture capital firms devote significant management resources to understanding new technologies and markets, finding promising startups in those spaces, providing them with financial resources, and coaching them through the early part of their lives.” (Davila, Foster and Gupta, 2002) In order to have competent venture capital for the increase of your value, you need to make a perfect pitch, and that can be done by the following methods:

• Well Defined Brand Image

You need to have a well-defined brand image before you go to the venture capital to make your pitch.

• Completely Documented

It cannot be stressed more that you need to have all your documents with you. Even if they are not required to see the documents, it is beneficial to go well-prepared.

• Leave The CEO Position Vacant

As we have already discussed, venture capitals like to invest in startups that are flexible and leaving the CEO position open is the perfect way to represent that.

How To Increase The Value Of A Startup? - Conclusion

How can you ensure that you never fail? The answer lies within the perfect consultancy by Equitest. You can calculate your startup valuation repeatedly and save the progress in your Equitest account, and you will be helped by experienced professionals that have expertise in their fields. You are just a click away!