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1071 points mtlynch | 1 comments | | HN request time: 0.001s | source
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tgtweak ◴[] No.39399561[source]
I think people (and the founder) are focusing on yearly profits as their remuneration and comparing it to a salary... but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. In reality your net worth went up by over $1.5 million in the last year, in addition to earning 236k - that is the actual value you created for yourself in the last year and not the 236k you cashflowed.

I find it redeeming that despite having a gift for development - software and hardware - the biggest factors affecting profitability and growth here are things that most MBAs would do in a business quite regularly (outsourcing design/packaging/fulfillment, streamlining costs, doing price elasticity experiments, polling customers and markets for product improvement).

I enjoyed seeing the inverted perspective that product/engineering is straightforward and low risk but things like optimizing fulfillment and operating costs is a new exciting endeavor.

One tip I suggest doing is leveraging google ads to figure out features that customers are willing to pay for before you build them... if they're clicking the ad they are searching for it and interested in buying it. Start a few very low cap campaigns calling out features you are thinking of building into the product, and see which one get's the most impressions and clicks per marketing dollar and focus on that. The added advantage is you know it will be easier to buy advertising for it once the feature is done.

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bad_good_guy ◴[] No.39400048[source]
Why should a company be assumed to be eventually sold? What the heck is that kind of perspective. The vast majority of small/medium companies are not sold - instead they provide regular income to their owners.

This sounds to me like typical toxic silicon valley startup mindset.

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1. gnicholas ◴[] No.39400843[source]
> The vast majority of small/medium companies are not sold - instead they provide regular income to their owners.

This is true. Most people don't want to buy and run a restaurant, bodega, hardware store, etc.

SaaS companies, on the other hand, are much more attractive to buy. They can be run remotely, often do not require many employees, and can be managed by a team that manages other companies simultaneously.

The author's company falls into a middle ground. Hardware manufacturing has certain idiosyncrasies that make it less turnkey than SaaS. But nonetheless, many of the functions (shipping out units) can be carried out by staff who are trained but not necessarily highly technical. And it sounds like the advertising has been pretty dialed in and automated (though would need to be tweaked in future years, undoubtedly).

There are some types of businesses that are hard to sell. Law firms, for example, can only be owned by lawyers! But companies like this one (and SaaS companies run by many HNers) are much more attractive for buyers.

But even if it's not ever sold, the notion of valuation is still useful because it quantifies the value of the future cash flows and the anticipated time-cost of running the business.