What are you worth?

Do you know your worth?

This is a question that effects almost everyone on any given day. For corporate types, the roadmap of worth is dialed into organization charts, pay bands and company performance plans (stock, profit sharing etc). The opportunity to create your own path is quite limited and fraught with political and systemic challenges. While most people stick with it, maybe change jobs, etc, it’s mostly all the same. Until one day during the 30 seconds of free will that exists when we wake up before the responsibilities of life rush it, we have a spark. That spark? I’m going to start my own company!

Once this spark fires, The journey of constant value validation starts. What is the value of the product/service that you are offering to the customer? To an investor, what’s your company worth? To a potential employee, how does their worth align with what you are building. The continuum of value starts with cost and goes to intangible value. I visited a clothing factory that made shirts for companies that sold the same shirt for $10 to $50. The only difference, the logo on the shirt. I’m an engineer and I consider myself frugal and pragmatic, however I opt for the $50 shirt most days because it makes me “feel” good. Welcome to the world of luxury brands. I write about this fairly well in my book, Creating the Intangible Enterprise: The Critical Skills Required to Thrive in an AI-Driven World

So how do you think about valuing your product/service or company? Think about your costs. It’s quite possible that your cost structure may actually be more in the early days because you lack scale. Then look at the scaled opportunity. As a startup, you may draw a straight line from costs to opportunity, but in reality it’s more of a journey. As you execute from opportunity to reality along the journey, the opportunity may end up being further out, smaller than initially anticipated or some combination of both. 

You start your company with a cost of $1m. The opportunity you are chasing is to build a company that in 5 years will generate $100m with 70% gross margins that could acquire a market over the following 10 years that would be $1B in revenue. An investor looks at this and determines that they will give you the $1m for 40% of your company. Why?! How?! They believe your data but have to risk adjust based on your background and ability to execute on product development and customer acquisition. You have also indicated that you only need $10m in total capital prior to an exit. 

They fund, you launch and oops..you miss a product deadline which means your revenue growth is on pause and you are burning more cash. Then it turns out, you are running out of money, so you need to raise more. This is the natural iteration along the way. Timelines have changed, total invested capital required has changed and oops 2 competitors have entered the market, so while the market size may be the same, but now you may need to share it. 

Damn. You just started this a year ago and things are already not going well. How do you feel about your worth and this point? For most, pretty crappy. However, what did you learn? Either you learned that there was a product complexity that your under sized, you hired the wrong people to build the product, or maybe other issues. These learnings add value, unless you don’t learn from them. For example, do you continue to hire poorly or get better. Have you refined your judgement to set better expectations?

Now, here is a wild thing to contemplate. Maybe you quit and go back to your company? They may hire you back and give you a promotion. What’s your company worth? Well it turns out because you were a first mover, everyone knows your brand. One of those new competitors that raised a ton of money wants to buy you. While “the market” sets the price, it doesn’t mean that you don’t have a role in how the market defines your value. 

In the AEC space, there is a tendency to price based on costs vs value. The same structural engineer may design a complex arena or a simple warehouse. They charge the same percent of project. Why? The arena may generate a ton of cash for the owner compared to the warehouse owner. Knowing why and how your customer makes money, should inform how you think about your own value. 

What’s the lesson? You are the only person that can rationalize what your worth is? After all, we are all just $5 shirts. 

Need help understanding your worth? https://kpreddy.co/catalyst-community