If your business ideas and implementations don’t pass through a financial lens, they’re likely useless.
I only have 20 minutes to talk about valuation. Here are the key points:
- 1993-2017: Business owners primarily focused on holding a specific product and selling it. The market was less saturated, and business terms weren’t standardized. Founders relied heavily on bank loans for capital and working capital. The deeper meaning here is that business owners in those days spent an average of 15-31 years building their credibility and financial standing. These assets could be leveraged through property collateral or personal credit profiles.
- 2017-Present: Younger business owners and a more competitive market. They couldn’t wait 15-31 years for results. Founders embraced equity financing, sharing their vision, benefits, and execution capabilities to accelerate growth. Equity financing is cheaper than personal loans but more expensive than secured loans (loans backed by assets). So, if you don’t have assets to secure a loan, your team must have the ability to manage and utilize funds effectively.
- 1993-2017: Primarily family businesses, sole proprietorships, and limited liability companies operating with relatively low financial and accounting standards. Simple profit and loss statements were common. Personal assets were often intertwined with business assets. This contrasted with industry standard cost accounting practices. Founders focused on the bottom line, assuming a surplus meant the business was healthy. Few founders could make informed business decisions based on financial reports and metrics.
- 2017-Present: The wave of capital raising and IPOs extended to family businesses and young private companies with modern governance philosophies. This demanded more sophisticated standards for businesses with multiple owners.
- To raise capital, we need to change our perspective.
Investors/Asset managers are also a type of entrepreneur. You sell products while they sell money. You have a cost of goods, and they also have a cost of goods. You will never buy something you cannot sell for a higher price, they are the same. We will never buy a pile of shares that we don’t know we can resell for a higher price. Therefore, founders need to bring business opportunities and the company’s ability to make money to investors, rather than approaching it as – how to raise other people’s money. Businessmen/investors are not philanthropists. They sympathize and empathize with your difficulties because they have also struggled. But for a sustainable capital raising relationship, it must start from value for both sides. We make money and are responsible for the money we manage. Founders are also responsible for many things in the daily operation of the business, and investors are also responsible for the cost of goods from the funds they manage. Therefore, learn finance and accounting properly to raise capital, find business opportunities for investors. We cannot give money to people who are not capable of managing it, because 100% of the time, we will lose that money. So the majority of founders fail to raise capital because basically, founders have little or no proper interest in money and finance. In a world where too much information hits you every day, if your ideas and information do not go through the lens of finance, you will lose focus and go astray. Leading to wandering-in-the-middle-of-the-road and then… running out of money.
- There is a direct, logical relationship between:
a) An entrepreneur’s business mindset. This means helping the company grow. As a founder, you have to deal with a lot more than just creating/producing a dish.
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- Helping your team members develop
- Helping the value chain develop
- Modeling a replicable formula
- Facing key tasks that need to be done every 5 years of development
- Taxes, customs, and the company’s responsibilities to government agencies… Don’t think that having a delicious dish means you can easily start a business.
b) Modeling your brand standards, processes, and methods for others to follow. If you can’t train others, it’s very difficult to replicate.
c) Replication and growth. Using capital effectively and efficiently, and it can be measured by financial statements. Data and quantification are the final results that reflect the meaning of ideas and efforts.
d) Raising capital and increasing investor wealth. Investing in expansion and exiting for professional institutional investors.
Thank you to the organizing committee for being so attentive and organizing an event that brings great value to the community. Although the time was a bit short, I couldn’t share all the real-world perspectives through case studies, but I also see this as the second series of events between colleagues with the goal of clarifying our philosophy with a more practical desire for founders. If your business ideas and implementation don’t go through the lens of finance, they’re probably… useless. Trust me!