Valuation · Sports

Financial/Marketing/Path to Market

Mark Sendo Founder, CEO, Forbes Contributor, Conference Speaker, TechCrunch featured story twice

August 24th, 2013

What could one expect of  placing a value of a  company  if the product had amazing potential, the product is IP protected and a working version of the prototype is built?   
Growth-hacking isn’t about quick wins and shortcuts, although they exist. In this course, we’ll cover the six-step growth hacking framework, how to measure user retention for your business, how to increase engagement and retention, and a bunch of case studies.

Anton

August 25th, 2013

Mark, I think a successful business needs to assess three things before launching (terms coined by IDEO):

(1) Desirability: your product should be a solution to a pressing problem or need for your customers.
(2) Feasibility: your product must be feasible to build.
(3) Viability: your business model should be accessible, practical and profitable (aka viable).

So far, you've built a prototype and proven feasibility. It also sounds like you're thinking about how to build awareness and build a product. That's great, but my suggestion is to focus on desirability and viability. Who is the customer? Why are they going to buy your new surface? What problem are you solving for them? One thing that caught my attention is that you are able to create a rink without snow or cold: perhaps there are some benefits here that you could explore. Keep in mind that your users and customers are two different market segments: users will use your product (play on the surface) and customers will buy it so that users can play. You'll need your product to be desirable to both.

As far as creating a new category of sport, I think it's cool but I don't think that's enough. Game designers build prototypes and do "play testing" with users to figure out if they're having fun and more importantly, why and how. Have your prototype tested by as many people as possible. See what they like and don't like. Improve the prototype until you've proven desirability, and only then go for building the final product with your KickStarter campaign.

Viability is very important, too. A new sport category requires promotion, and a video of a 5-time NHL All-Star alone isn't going to build you a business, it's just one promotional tool. Plus, promotion is only one part of your business model. Talk to your potential buyers and find out who would be interested and why. Understand your value proposition and all parties involved. Think about key partners, channels, revenue sources and costs. A good framework is the Business Model Canvas.

Anton

August 25th, 2013

Mark: I was giving you an example in my last reply, not trying to figure out your business--that's on you. I still stand by my suggestion to figure out who your customer is, what value you are providing them, and how you're going to reach them (I am not suggesting extensive market research or writing a business plan). If you don't want to do this, you can certainly still succeed, and there exist others who have. IMHO, success without thinking through these things doesn't come as a result of skipping these steps, but rather in spite of having done so.

No matter what you decide, good luck on your venture and I hope that you make a lot of money.

Mark Sendo Founder, CEO, Forbes Contributor, Conference Speaker, TechCrunch featured story twice

August 25th, 2013

@anton, i think you have the AirBlade project dead wrong, but i want to thank you for all the great help so far.  YOu see, ive held onto this idea for more than 10 years and only recently did i feel 1) that the market ready, 2)  that i was capable to execute on such a big project.  

Do you suppose that the people who invented all-these new age sports, assessed all the prospective buyers, clients, created business models, determined a value proposition, etc.. I certainly don't!    They, like me built it to have fun, for my kids and others.   Building the prototype, testing with dozens and dozens of different shape, weight, dimensions jof a new type of hockey puck was quite frustrating, challenging but extremely rewarding once the puck was perfected. 

So i own the IP, and this week i plan to incorporate, i have secured a nationally prominent construction  company to build AirBlade.  

I've talked to the founder and CEO of Professional Inline Hockey association, CY.  That League is dead as a profitable business and  hockey is declining both in attendance and revenues.  And I also spoke to the EVP of ethe marketing/promotional for the Palace of Auburn Hills, MI who also the Arena for the Detroit Pistons. who conveyed his desire to have the Palace Arena host the debut of AirBlade.  be the   . I did all this work before i decided to move forward for building the prototype.  

TBC.....

Anton

August 25th, 2013

I think it depends on whether you're looking to sell your business, get an investor or simply value your company's outstanding shares for your own purposes. For the first two, see my answers below. For valuing your own shares, don't forget that if you pick a high price you'll pay more in taxes so there's really no need to go crazy here before you're making money.

--- The "scholarly" answer: ---

1. Estimate future earnings: Most traditional approaches to company valuation require knowing earnings over some period of time (for example, the Net Present Value Method often used by VCs). If there are no earnings yet, you're left to use your assumptions to estimate future income. This is not very reliable, especially if you're projecting income and growth over a period such as 5 years. Any final price arrived at by this method will likely need to be reduced (a lot) to account for risk.

2. Value your assets: First, add up the values of all your tangible assets (anything physical, like equipment). Second, estimate the values of your intangible assets (any nonphysical, such as your IP--trademarks, copyrights, etc). Intangible assets valuation can be tricky because, again, you're making estimates.

3. Use a comparable valuation: Look at the valuations of companies doing something similar (with regard to market, product, etc). Estimate your earnings and size over time and choose some companies to compare to based on it. I'll say it once more, though: when estimating earnings and growth, especially with no baseline, this can be very inaccurate. As a ridiculous example, say I'm building a social network, I project obscene growth and use Facebook for my comparable valuation. You can bet investors wouldn't buy into it.

Note: don't forget that investors (especially VC's) need to see a large ROI to account for the fact that most of their investments won't work out, so convincing someone that they'll see something like a 25X return based entirely on assumptions can be an uphill battle.

--- The "practical" answer: ---

Based on my talks I had with colleagues who seek out companies to invest in, I think that valuation can be very subjective. Most investors aren't nearly as interested in your idea or product as they are in you and your team, and your ability to pivot your business if you run into trouble. Some investors get excited about a product's potential reach and don't stick to any typical valuation formula; they bet on the entrepreneurs to find an income source later. As an example, look at MOOCs (Massive Open Online Courses), there the major players have millions in funding and yet are barely making a profit. The less of a commodity your product or service is, the more these things may apply to you. When you say your product has "amazing" potential, that's naturally a very subjective opinion, so your goal is to get your investor to see it (and you) that way. It also helps if your prototype is far along: are customers already using it? How much has it been refined based on feedback from your market? If not at all, this will harm any valuation because you haven't proven that customers love your product.

I think that if you're really on the brink of developing a profitable and high-quality product, take it as far as you can without selling of finding investment because you'll get a higher valuation the farther you get. Plus, you might make a lot of money and change your mind about selling so early, too!

Mohammad Forouzani CEO at Forecast.net

August 25th, 2013

Im assuming you have seen the guy on dragons den with the new ice rink a couple of years ago?

http://youtu.be/J4XvXUTqquQ?t=8m38s

He did a trial of his rink (MVP),  you might want to get in touch with him... he might have a few learnings that can help you progress.

Dimitry Rotstein Founder at Miranor

August 25th, 2013

> @Dimitry, Im looking to bring in a few outsiders in return for "work for equity"

> and/or "buy % of founders stock" thus a valuation is needed.

Then you are talking about co-founders, partners, and investors. In my experience, co-founders and partners join a venture based on their own assessment of the idea and its potential, and they don't really care about valuation, since they know it means next to nothing at such an early stage and is subject to change drastically within a short time (unless they are complete amateurs, of course, but then you'd better stay away from them). As for investors, most of them (again, in my experience) have their own idea about valuation based on their own constraints and hardly care about your estimates. In any case, in case of an investment, the valuation is determined through negotiation with the investor. Either way, as I said in my first comment, it's not really important what number you choose right now.

Anton

August 25th, 2013

Mark, I'm glad to hear you find my advice helpful.

You can certainly raise money to build a bigger prototype but I think you should first understand who your customer is and their needs. To answer your question, yes, you are doing a "proof of concept", but to do that you actually need to prove your business concept. For a moment, forget about raising money and forget about building any more prototypes. You need to assess the desirability of your product and the viability of your business model (doing this will prove the concept).

Think about two things: your value proposition and your business model.


Your value proposition: figure out who is going to be using your product and figure out who is going to be buying it. For each, figure out why they would do so, what problems you are solving and/or what benefits you are offering. Once you do that, however, you're not finished. At this point you have made some assumptions. Figure out what they are and test them by actually engaging with the customers.

For example, suppose that you expect adult athletes to use your new surface to play hockey because it is a safer playing surface than ice/roller hockey and can be used year-round. Also suppose that you expect local municipal arenas to be interested in buying your new surface because it costs a lot less money to operate than a cooled rink. You would get in touch with as many adult hockey players as you can and ask them: "would you want to train on a safer surface?", "would you use my surface?", "why or why not?", and also ask them to try your prototype and get feedback: "how does it feel?", "what do you like/dislike?", etc. Don't stop there, find out their actual needs, what they are concerned with, what problems they currently need a solution to and see if your invention can help. Do the same for the arenas. Imagine that you did this and found out that adult hockey players have no interest in the safety offered by your new surface, and in fact don't want any of the benefits you thought your surface offers, but you also found out that children enjoy playing on it and concerned parents really like the fact that it's safer. Also imagine that municipal arenas liked the idea, not because it saves money but because it would attract a lot of young athletes and bring them more revenues. In this example, you have made assumptions about your customers and tested those assumptions to find out they were false. You then updated your understanding and learned about your customers to arrive at a new value proposition for a new set of customers.

Your business model: beyond thinking about who will buy/use the product you also have to think about how you will reach them, where, what they will pay for, what it will cost you, etc. Test your assumptions here just like you do with your value proposition. I strongly suggest reading out the Business Model Canvas as a tool for tracking this.


Don't think of this process as linear. Creating a startup is not a series of steps that you take. It's more of a cycle, where you (a) test your assumptions about your business and your product by engaging with your actual customer and then you (b) change/update your plan or product to reflect what you've learned, and start testing your next assumption. Do this until you've proven your key assumptions.

Furthermore, what's the point of writing a business plan if you haven't tested any of the assumptions you're making in it? Your investors will ask how you know that all your assumptions are true. Experienced investors always ask about your customers and what you know about them, so don't skip this phase.


My advice is to start with customer desirability and business model viability. Write down assumptions and test them with real customers. Then and only then, feel free to raise money and do all the other things you have planned.

Dimitry Rotstein Founder at Miranor

August 24th, 2013

Generally speaking, evaluating a private company with no revenues and no investors is a very tricky business. Such questions cannot be answered reliably on a forum such a s this. You should get experts with full access to all company asset information to evaluate the company, then you should probe potential investors to see what value they are prepared to assign, then check evaluations of the most similar companies at the same stage, and then you just close your eyes and pick any number you like - it's all but a guesswork anyway. Personally, I like the number 1,000,000 - it's nice, round, and not pretentious :-)

Mark Sendo Founder, CEO, Forbes Contributor, Conference Speaker, TechCrunch featured story twice

August 27th, 2013

@Anton, we tested the desirability of this already.  Both to players, 100% wanna try it, and a professional inline hockey association  leaguer with 15 teams  Are you familiar  with inline hockey ?http://en.wikipedia.org/wiki/Professional_Inline_Hockey_Association
They at one point had or almost had an ESPN contract, so combined with ticket sales, and sponsorship created what seemed to be a profitable new  sport/league..  the fans stopped attending b/c of lack of excitement. 

What do you think of partnering with them as they have players, infrastructure, teams, rules, policies, etc.. and we have the winning ingredient, excitement? 

Mark Sendo Founder, CEO, Forbes Contributor, Conference Speaker, TechCrunch featured story twice

August 25th, 2013

Thank you Anton, Mohammad and Dimitri for the feedback.  I think i failed to explained properly what the project is and what i invented as your answers would i think  be different..  My Invention is an illuminated, air pressurized, playing surface with banked corners.   In other words, imagine an air-hockey table the size of a professional basketball court, and the players where roller blades.  its like inventing a new standard,  a new platform so its not necessary a typical tech project.  Now having said that, woiuld your answers still be the same?   It's a better mouse trap than traditional hockey that can change the culture of sports.