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How to Make $1 Million in Six Months


No,  it’s not a scam, it’s called entrepreneurship.

Qualified startups seeking their first angel funding usually get valued at between $1 million and $3 million and usually have little or no corporate track record.  So what are the attributes of such valuable new companies?  Surprisingly, it’s not so much the product, nor is it real earnings:

  • Make a Team from Diverse Skills
    • At its best, diversity in business means diversity in training and experience.  One of the teams I know has among the six:
      • a few small business owners for general acumen,
      • an experienced numbers person for financials,
      • a professional manager for coaching and shepherding,
      • a programmer to develop the product and check the work of an outsource house,
      • an industry insider,
      • a savvy sales person,
      • an intuitive marketer,
      • and the visionary around which they all rallied.
    • It’s okay for one or more to do double duty, as long as you legitimately have the skillset covered.
  • Build Relationships that Endure
    • Define your roles and responsibilities among the team.  That doesn’t mean silo off, but it does mean have a decision process (see Andrew Grove’s High Output Management).
    • Know your customers and keep them engaged early on.  Get them to pay for your good or service, even if you could give it away for free, as a vote in favor of your vision.
    • In split market situations (e.g., you’re trying to connect two different groups of customers), get them to know one another.
    • You need all this because your product and business model are going to change, and you need to carry folks through all the changes.
  • Build a Product that Tests the Key Idea
    • Eric Ries has done yeoman’s work popularizing this idea with his book The Lean Startup.
    • Since entrepreneurs have no money and no time, you can barely test what matters.  Don’t put time into what doesn’t.
  • Have a Good Business Model
    • I think a lot of high profile companies like Groupon give the wrong message when they grow big without making public their ideas on profitability.  I’m sure they have them.  If you think they don’t, you should call your stock broker and shout, “sell! sell!”   (Oh wait, I see you did already.)
    • Don’t think it’s okay just to get “eyeballs” on your site.  You must have a plan to make (and keep) money.
    • It helps a lot if your idea has a potentially big ($1 billion) market.  You can rework a piece of the $70 trillion world economy, or you can tack your new billion onto the end.

So to summarize, you’re in good shape if you have a diverse team, some paying customers, a de minimis product, and a plausible way to make (and keep) money (a lot of it).  Go to it.

How much is my startup worth?


This is the question for any startup looking to measure their personal wealth creation, take on additional capital, or sell their business.  Unfortunately, the answer is usually, “Somewhere between nothing and a whole lot.”  You can do better.

Working Backwards: Step One

Think about what your business is going to look like when it’s big and stable (or stabilizing).  For instance, “we’re going to be selling units (or service hours) to about 35% of the market, which will be growing at 3% a year, and increasing our penetration of that market by about 5% a year.”  This sets some top-line revenue numbers.

Compare yourself to other businesses in similar roles and apply similar operating margins, R&D budgets, or other ratios to your business.  This gets you to the bottom line.

Think in terms of different scenarios (“best case,” “worst case,” dissolution, etc.) and how likely those scenarios are.

Working Backwards, Step Two

For each scenario above, run the forecast from Step One for about seven or ten years, from a period of no earnings (you’re reinvesting everything) to a period of justifiable margins.  If you’re going to be the first arrival on the scene, you can justify higher margins; if you’re second or third to market, you’re going to have smaller margins.

Use a discounted cash flow analysis to create a valuation for each scenario as of the start of your “stable” period.

Product-sum the valuations and the probabilities to derive a weighted valuation.


Working Backwards, Step Three

Use your detailed project plan (perhaps using EVMS) to estimate the total capital and amount of time needed to get from where you are to where that future forecast begins.  Give yourself lots of margin, because it’s not going to go according to plan.

The time required is the time horizon over which you further discount that valuation from Step Two.

The capital required is how much money you’re going to need, altogether.

For more information

Leave your comments below!  Or if you feel like going to the library, see McKinsey & Company, Tim Koller, Marc Goedhart, and David Wessels, Valuation: Measuring and Managing the Value of Companies, 5th Edition.  Hoboken, New Jersey: John Wiley & Sons, Inc., 2010.  Print.