Q: How Can I Calculate The Exit Value Of My Idea?

It’s masturbation to calculate the exit value of idea that has not been reduced to practice and achieved some level of traction. The real question is how much time and effort to invest to achieve a level of traction that would allow place a value on the business that leverages the ideas. Often it’s not a single investment but a sequence of affordable loss bets–perhaps escalating in size.
Q: I am a young entrepreneur working on a startup. A number of mentors have stressed the importance of calculating your exit–starting with the end in mind. How important is this? Does knowing this change how you develop your business? If so, are there any useful and accurate tools I can use to calculate the exit value at the idea stage?

Calculate Value To Prospects To Estimate Exit Value

I think it’s more useful to calculate the value your product can offer prospects and consider how to increase it and differentiate it from other alternatives available to them. I think you will find a strong correlation between providing value for your customers and the amount that an acquirer or the public market will pay for your company. It’s really hard to see to the exit at the beginning and most stories of the founder’s prescience or clear eyed view of the future tend to be constructed after the fact and suffer from survivor bias–no one interviews the “also rans” with similar plans and objectives who failed.

I had a conversation with an entrepreneur last week whose startup is in acquisition discussions. They bootstrapped in a difficult market and persevered against both older technologies and some venture backed competitors: the 3 founders may split more than ten million dollars. He was lamenting the niche market they had chosen but the reality was that the founding team had considerable domain expertise and were profitable from day one. They focused relentlessly on customer satisfaction and only lost customers to bankruptcy or acquisition.

My point is that your ability to create an exit is predicated on your ability to create value for your customers and you have to pick markets where your team’s experience and expertise will provide competitive differentiation. Also the less money you need to get started, even better if you can bootstrap, the more of the exit you can actually put in your pocket.

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