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My sixth year as a bootstrapped founder

mtlynch.io

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Re: My sixth year as a bootstrapped founder

#151

Post by danielmarkbruce »

csa wrote: post #140
awhitby wrote: post #94

Earlier quoted context omitted.

You're missing something. From the post: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k. and > Result: I worked 35-40 hours per week, a reduction from previous years, and traveled more than any previous year. This is a person who is effectively full-time CEO of this business and whose market salary is likely at least $236k. If they sold the business, the new owners would have t…

> right now the business has a profit, and therefore a valuation, closer to zero You’re thinking of this like an engineer rather than a business person. 1. When selling a business like this, the $236k would be called SDI or SDE (seller discretionary income/earnings). 2. The buyer determines what, if any, of that SDE will need to go to paying someone to do what the seller does. These duties could be assumed by the buy…

He's thinking about it like a business person who is looking at buying a business. It's worth close to zero. In it's current state this business is not an asset, it's a organization doing stuff.

Breaking it out into SDE + adjustment is what the comment already does, albeit without using that terminology.

One cannot hire a person who can do all the things this owner does. The person is a smart former google engineer. These people don't grow on trees. It would take a few people to do a bad approximation of what he does. The adjustment to SDE is going to be 100's of k and you get to 0 cash thrown off.

Re: My sixth year as a bootstrapped founder

#152

Post by solumunus »

holoduke wrote: post #132
tgtweak wrote: post #51

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 - t…

No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.

Ouch. Businesses sell for more than 4x all the time. There are countless examples of that.

Re: My sixth year as a bootstrapped founder

#153

Post by csa »

gnicholas wrote: post #143
csa wrote: post #140

Earlier quoted context omitted.

> right now the business has a profit, and therefore a valuation, closer to zero You’re thinking of this like an engineer rather than a business person. 1. When selling a business like this, the $236k would be called SDI or SDE (seller discretionary income/earnings). 2. The buyer determines what, if any, of that SDE will need to go to paying someone to do what the seller does. These duties could be assumed by the buy…

GP does not suggest a valuation of zero. GP says that the profit and valuation is closer to zero. It is not crystal clear if this means "closer to zero than it is to $236k" or "closer to zero than $236k is" (i.e., less than $236k). The second is undoubtedly true. The first may also be true, but would depend on the cost at which the labor can be outsourced reliably, and what oversight would need to be done of these ou…

Fair enough. I changed my comment to “closer to $0”.

I still think that even talking about or towards $0 is bizarre. Saying something like “less than $236k” would have been much more meaningful if op meant either thing you said.

Re: My sixth year as a bootstrapped founder

#154

Post by danielmarkbruce »

avinoth wrote: post #115
awhitby wrote: post #94

Earlier quoted context omitted.

You're missing something. From the post: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k. and > Result: I worked 35-40 hours per week, a reduction from previous years, and traveled more than any previous year. This is a person who is effectively full-time CEO of this business and whose market salary is likely at least $236k. If they sold the business, the new owners would have t…

Valuing a profit-generating business that's making $1m in revenue as zero is reductive. Valuation of business isn't necessarily determined by profits (perhaps for commodity businesses), It's just one of the metric. This is a business that has strong operations, product, assets, and IP, honestly quite surprised with this take. Also, a nit fwiw, you automatically assumed the entire profit of the business is the market…

The point is it isn't profit generating by any reasonable definition of profit and doesn't have some obvious path to get there.

Taking into account all the things you mention, many reasonable people who spend time buying and selling businesses all day would value this business at zero.

The nit is generous - 236k is not going to cover the iq points and hard work required to do the role of this owner.

Re: My sixth year as a bootstrapped founder

#156

Post by Yabood »

Aerbil313 wrote: post #60
tgtweak wrote: post #51

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 - t…

> …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. Muslim here. I think this is completely immoral and I don’t want to ever participate in stock market if/when I found a company. I want my business to be valued with the actual value it provides to people (the amount the…

As a Muslim, I disagree. A business is more than the sum of its revenues. Marketing, research and development, relationship with clients, etc. are all part of the business valuation. If a buyer looks at some business and decides its worth 10x, then that's not haram as long as you're not deceiving them.

Re: My sixth year as a bootstrapped founder

#157

Post by Andrex »

tgtweak wrote: post #51

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 - t…

Valuation is only useful if you're looking for an exit, and maybe if you need to borrow a lot of debt (but if you're bootstrapped, that's not on the table). For lifestyle startups, profit is cold hard cash and valuation is a number in a spreadsheet.

Re: My sixth year as a bootstrapped founder

#158

Post by danielmarkbruce »

solumunus wrote: post #152
holoduke wrote: post #132

Earlier quoted context omitted.

No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.

Ouch. Businesses sell for more than 4x all the time. There are countless examples of that.

Give the examples. Businesses this size in this market have very few (/0) logical buyers.

Re: My sixth year as a bootstrapped founder

#160

Post by gamepsys »

titanomachy wrote: post #141
holoduke wrote: post #132

Earlier quoted context omitted.

No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.

Why sell a healthy growing $10m business for 4x earnings? Did you have debt to service, or just wanted to do something different, or some other reason?

At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. The company will probably under perform over time but you'll get more juice from the fruit.
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