Startup Valuation : The Berkus Method

Startup Valuation : The Berkus Method

5 Pillars of Startup Valuation

Sound Idea (basic value)$1/2 million
Prototype (reducing  technology risk)$1/2 million
Quality Management Team (reducing execution risk)$1/2 million
Strategic relationships (reducing market risk)$1/2 million
Product Rollout or Sales (reducing production risk)$1/2 million

Examples of Sound Ideas for Startup:

  • Craft beer: You can experiment with different brewing techniques and conduct taste tests. You’ll also save startup money by opting for a smaller business rather than a large brewery or chain.
  • Box subscription services: Consumer is excited by the idea that these subscription boxes are carefully curated just for them based on their likes and interests, and each month, the boxes’ contents are a surprise. Offer cheaper products will help you stand out from the competition.
  • Health clubs for millennial’s: Capitalize on the fitness trend, especially if you focus on creating a strong, fun and engaging social media presence to really connect with young members and potential customers.
  • Kid-friendly apps : Create products or design apps just for kids.
  • Software training workshops for Skills: Schedule small group workshops or private sessions, and charge by the hour for tutoring software skills that increase employability of users
  • Start a Food Truck: The failure rate for food trucks is just 10 to 20 percent (as opposed to 60 to 90 percent for restaurants).
  • Translation services : big business opportunity for entrepreneurs who can bring foreign-language speakers together with businesses in need.

Prototype and Minimum Viable Product (MVP) : 7 Reasons why you should have MVP

  • Minimize development costs
  • Test your business project
  • Get your first paying customers
  • Get feedback
  • Save your time
  • Attract investors
  • Don’t waste your efforts

5 Qualities that Quality Management Team of Startup should have :

  • The Required Skillsets : Hire the guys with Domain expertise even as a Founder you don’t belong to that domain .
  • Past Startup Experience : Have someone that knows how to operate a budget “on fumes”, and has demonstrated past success taking an early-stage business and growing it from an “acorn into an oak”.
  • Personality Fit With Team : The Team Leader who can be sportive , fun loving and mingle with the group
  • A Shared Vision : Each member of team needs to share a consistent vision on exactly what you are building.
  • Fire in the Belly :  All involved have a deep passion for the product and fire in the belly to move at light speed to own your market. Entrepreneurship is not a 9 to 5 job.

Strategic relationships

  • Business Development relations with cross marketing. Eg. National Geographic acquired 30% of iExplore, for cash and promotional support.
  • Revenue share relationships
  • Equity owning relationships.

Advantages and disadvantages of strategic relationships,

The POSITIVES are:

(i) they can help you grow your business faster and cheaper than you could on a stand alone basis, if structured properly

(ii) they get venture capitalists more excited about the upside of your business

(iii) it makes other business partners more excited and comfortable with working with you.

The NEGATIVES are:

(i) working with one partner (e.g., National Geographic), may make it difficult for you to work with competitive other partners (e.g., Discovery Channel), so be sure to pick the biggest, best partner to work with

(ii) venture capitalists may think you have limited their exit options by working with one key partner, so make sure nothing in your deal requires you to sell your company to that partner or limits your exit options in any way.

Product Rollout or Sales

  • Every startup needs sales. As mentioned earlier, it’s the fuel that keeps your startup alive. Of course, you’ll go out of business if you don’t have enough sales to keep up with your business.

9 essentials to boost Startup Sales

  1. Sell the benefit, not a comparison.
  2. Listen to your customer firsthand.
  3. Market your product before it’s ready.
  4. Think 1000 ways to sell your product
    Use online video marketing, social media, blog influencers, crowdsourcing, competitions, content marketing, thought leadership and more.
  5. Test fast. Fail fast.
  6. Advertise from multiple angles.
  7. It’s always time for PR
  8. Give customers a place to talk to/about you.
  9. We look forward to seeing you again.
    Word-of-mouth testimonials and customers who are brand advocates are better than any sales team you could put together. The purpose of a businesses to create a customer who creates customers

Co-Founder & CEO of 99Crores, Clinicopedia, uMedico

Leave a Reply

Your email address will not be published. Required fields are marked *