Chase Profits Not Valuation
Too many entrepreneurs start a new business thinking about the exit. There is a fancy business plan with big numbers (created to please would-be investors). And when there are investors, there is always talk of exit and returns. And thus it starts to become a valuation game. Once money is invested from an investor in a business, the game is on. Money needs to be spent and new money needs to be raised in the chase for a higher valuation. Little thought is given to the quality of the spend or the business model.
Chasing valuation is the wrong way to run a business. Valuation does not create the business model; it is the business model and growth that results in a valuation. The valuation is an outcome over which an entrepreneur has no control. What the entrepreneur controls is just the business.
In IndiaWorld, I had to focus on profits because I did not have funds or investors. And once we were profitable, while I did get incoming interest from investors, I was never under any pressure to do a deal. I was cashflow positive, profitable and had money in the bank. I could take my time and quote my price.
It wasn’t easy staying focused on profits because everyone else was chasing valuation. As such, there was huge spending on brand building that was happening all around me. It wasn’t easy keeping my head down and staying focused on the business. The pressure to raise-and-spend was there, but I knew that once I went down that route, it would be hard to stop.
Even in Netcore, we have followed the same approach. We do not skimp on the right spending. We stay focused on profits. Valuation is what will come when it comes. I always have a mental estimate when I am asked, but it’s not the chase. The focus is on staying profitable and growing them.
During the current pandemic times, this has worked out well. Because of our profitable and private foundation, we can take the long view and imagine the business we want to be in two years time, and work to build that. Had we been chasing valuation, then I would have had to perhaps spend a lot of time worrying about the impact of down-rounds and the need for cost cutting.
So, as a proficorn entrepreneur, stay focused on the profits. The valuation will come when it comes!
Tomorrow: My Proficorn Way (Part 23)
