Economic Evaluation of a Startup Essay
In recent times, the word startup has already been strengthened in business vocabulary. Thousands of young people around the world are dreaming of realizing a startup worth of the Silicon Valley that will be successful, profitable and necessary for people. The modern world already knows hundreds of successful young people whose innovative idea has won the market and gave a million profits.
However, there are people who remain living legends even for a long time. One of them is Paul Graham. This is a worthy role model, which proves that anyone can do a lot if he really wants it. Starting a startup is a very tempting idea, but it is necessary to realize what increases its chances to succeed.
For the first time, the concept of a start-up was applied in 1939 in Silicon Valley by two graduates of Stanford University. They established the company Hewlett-Packard, which became a giant in information technology. Today, every Internet entrepreneur and a person who wants to implement a new idea know what it is.
Today it is a newly established enterprise, possibly not entering the real market or just beginning to enter it and having a significantly limited set of resources. In this case, a startup company may not even be registered with the relevant authorities. Primarily they are based on innovative technology. Innovations, on which business projects are built can have both a global and a local scale, that is, be considered innovative all over the world or in a single state. A distinctive feature of this business idea is the fact that the founder often wants to develop a valuable thing that would be useful for people. It is not an initial goal to make money.
There is an opinion that only Internet companies and other enterprises whose activities are connected with information technologies have the right to be called startups. However, today this concept extends practically to any industry. In addition, it can be not only the company but also a separate investment project within the already operating organization.
In many cases, the authors of start-ups, and often investors, do not have a minimal knowledge base in management and economics. Therefore, even before the implementation, it is necessary to conduct a procedure of a start-up evaluation. This will help to guide investors and creators in determining whether a business idea will be really useful. This will also help to find out the current price, capitalization, as well as the possible market value. It is important to understand that the cost of the idea itself is zero at this stage. Exceptions are only cases where the idea has already been formalized in the form of a license, an author’s certificate, a patent or another option for registration of intellectual property. Only a creative potential of the author of the project or a team, if it was developed by several people, and the entrepreneurial initiative is estimated at this stage. It is especially important for both sides to correctly assess the intermediate and final price of the project since this determines its profitability and vital potential.
There are several methods for assessing business:
It is possible to use market approach. Within the framework of this approach, one or several methods are used, based on comparison of the studied enterprise with similar, already sold projects;
The second one is revenue approach. With a revenue approach, the business project evaluation is based on the recalculation of expected revenues from the enterprise;
An approach based on assets. The valuation of the business or its own capital, in this case, is made on the basis of the calculation of the price of the assets available to the company, net of its obligations.
However, none of the above methods make it possible to objectively assess the effectiveness of capital investments in a startup project. The reason for this lies in the important difference between a stable business and a start-up. The profitability of the former tends to a final profitability. The profitability of the second can reach fantastic values in comparison with the profitability of stable enterprises. The principle of evaluating a business model is not to assess the financial situation at a given moment, but rather to assess its future state at further stages of implementation, taking into account all risks.
The second most important moment in the development of a startup is its team. There are many cases where a potentially successful business has fallen into decay precisely because of the actions of the team. Any discord in the team or mistrust between employees may sooner or later lead to the collapse of the project. But what team is really good? Its most important property must be absolute trust between all the people working in it. Only, in this case, we can expect successful results. But this raises the second question: how to achieve the full trust?
It is important that the startup company has its own employees. Of course, you can use the services of remotely working professionals and even hire part-time workers, but the team should have a permanent core. In real life, just two-three persons will be enough to manage it. Everyone should clearly understand the goals and how they are planned to be achieved. The vision of the project by all employees will allow the company to come to success. But it is necessary to realize that the vision itself will not arise. Everyone needs work harder on it.
It is also necessary to pay attention to the goals of team members. Naturally, with the participation in the project, each member of the team will pursue any personal goals, however, and the overall goals of the team for them should not be in the last place. It is necessary to understand what each employee wants and how this relates to the purpose of the whole project. In this case, the team will be able to remain in the initial staff at all stages of the implementation of the business project and, therefore, to achieve success.
In any even the most amicable team there should be a clear delineation of powers for the director, director of marketing and technical director. Each of these employees should be responsible for his direction of work, but at the same time be aware what others are doing. You shouldn’t put yourself in a situation where a person is responsible for the technical part but is not interested in the marketing side at all. At the initial stages of the project implementation, such an approach will allow consolidating the team. Unfortunately, not all of them manage to collect an excellent team from the first time. But it must be understood that more qualified and valuable personnel can always come to the place of the departed employees. For a real business, this situation is quite ordinary. The startup with a slight change in the team still has a chance of success.
Creating a startup is not an easy task, but it’s always worth a try. Currently, open source technologies are extremely popular. Undoubtedly, IT startups have more chances to succeed, and it is precisely for this reason such business ideas gain unimaginable profits. Nevertheless, we should not forget that in spite of the fact that the startup is much easier to organize than a full-fledged organization, the rules of business and economic evaluation still play an important role.