Falling in Love with a Unicorn
Sunday began the week with the Holiday of Love – St. Valentine’s Day. How do love and emotions influence our decisions about business and investing?
Many people have used the services or read about a Unicorn or a Unicorn “wanna be” without even knowing it. Fortune.com defines a Unicorn as a once mythical, now reality, start-up business valued at more than $1 billion and includes Uber ($62.5 billion), Airbnb ($25.5 billion) and Snapchat ($12 billion)*.
Jacksonville-based Fanatics is a local Unicorn valued in excess of $3 billion that is putting Jacksonville on the start-up map according to a First Coast News report (http://fcnews.tv/1om5Exd)
Speed to market for a unique new idea is critical for start-ups. The exuberance of growing a company fast can generate more endorphins than the Boston marathon, while the adrenaline rush can lead an enthusiastic business owner to burn through huge amounts of cash in an attempt to gain market share. This cash burn must show traction – is the cash you are investing to gain market share paying off? Are the dogs eating the dog food or, in other words, are you acquiring as much of your target market as you project or need to justify continuing to increase the value of the Company and command the incredible valuations such as in the previous examples?
The basic principles of running a business, i.e. the eventual need to generate enough revenue to create a profit remain a core value of building a business. For example, if the cost of production plus acquiring market share is more than what you are selling the item for, that’s a no-win situation down the road. Using metrics and projections, founders and owners must continue to evaluate building enterprise value in order to provide a return on the investment to shareholders.
My experience serving as the Principal of a Private Equity Firm and as a CFO of small and large entities provides a depth of experience that can help with the analysis your business needs to understand if you are on the right track for building enterprise value. Please contact me to discuss your unique situation.
* http://fortune.com/unicorns/. Note these are estimates of the companies’ enterprise value based on the latest rounds of private financings. These companies are private and it is difficult to find the exact valuation.