Are you working hard but still not getting investors for your start-up? Here’s how you can systematically raise your start-up’s value to the stars!
Building an electronics start-up is undoubtedly a lot of hard work but is also euphoric in a sense. When you build up your start-up, you slowly see your vision and dream taking shape. It is like your first child, and the very first moment you hold it in your hands it feels like the most joyous one ever.
So, it is clearly going to hurt when someone undervalues it. The hard work and struggles may feel unacknowledged. You may feel baffled and helpless trying to figure out where exactly did you go wrong. Read ahead to know how you can build assets that will sky-rocket your start-up’s value!
The first step towards finding out the formula to raising the value of your organisation is to ascertain if it is a start-up or a company. With so many start-ups coming up recently, a lot of people have been using the two terms interchangeably. But there is a clear distinction.
“Most people tend to call a company a start-up because of the glamour attached to the term. But it’s wrong. To put it simply, a start-up is a small company that has not yet found a working and scalable business model,” says Anand Tamboli, founder and CEO of Anand Tamboli and Co.
He adds, “If you have been working for more than two years and haven’t found a scalable and working business model, and you call your company a start-up even after being in existence for more than two years, you are probably wasting your time or money, or both.”
Assets are the single most important thing that can help raise the valuation of your start-up explosively. Although it seems simple, you would be surprised to know how many start-ups forget this critical point while trying to leverage their company.
But what exactly are these assets? And how can you use them to make your start-up more valuable?
Assets are essential for driving investments into a start-up. It is no secret that a start-up needs investments to survive. No matter how much initial capital is invested in it, without investment it is extremely challenging to keep a start-up running. Not only are the assets required to carry out day-to-day operations but are also imperative for scaling your business smoothly.
“Income follows assets. And assets create value; they bring in revenue and raise a company’s value in the process. Until you have all the right assets your job is to build assets. There is no point in doing anything else but this,” says Tamboli.
The first asset is your minimum viable product, also known as the MVP. It is the initial idea that drove you towards setting up your start-up. It is the foundation of your company that drives the future operations and actions of your business. But merely having an idea, on its own, is unsalable. The outcome or by-product of that idea is what brings in the money. And that is your MVP.
If you lack a tangible product, or an IP (intellectual property) to highlight the true value of your start-up, you will end up relinquishing a lot of equity to the investors, which you might regret later.
“One of the mistakes start-ups make is that they try to reach out to investors early on. And what happens is, you get the market rate on certain notional value. And if you are negotiating with an investor, you will have to accept whatever number they put because you have nothing to contest it out,” says Tamboli.
In the case of an electronics start-up, it could be a design that you have come up with or a niche product that you have discovered. Once you have your MVP ready, your start-up becomes much more solid in its functioning, even though your valuation might not rise much, because it then makes you ready to work on your next asset.
The core product is the next asset that comes out of your MVP. It is the tangible product or service that you can sell to consumers. It is what goes out into the market and what you show to the investors. It may be a low-function, low-feature product, but it is still a commercially sellable product.
At this stage, Tamboli says, “Most people will tell you that the team comes first, and the rest comes later. Unfortunately, it is not the case! You first need to build an operating process and an operating system.”
Creating an organised set of activities to follow when creating your product is particularly important before you bring in any team to start manufacturing or building your product.
You can have the best people in your team but without a set of guidelines, there is no chronology in the order in which a team works, and that will make your business go haywire. There will be no coordination between them, and that can cost your start-up not just precious time but also a lot of money. Money that you are scarce of.
“The team has to sell something, and for that the product has to be valuable. I cannot have a great guy on my team and a zero-value product. That is not going to go anywhere. But if you have a great product and do not have a great guy, you still have a positive value,” explains Tamboli.
So, before assembling a team, work on building a proper operating system based on which the team can work. Working out how you will manufacture your product, sell it, repair it, market it, and so on will provide you with much-needed clarity when starting off your electronics business.
At the same time, it is important to know how to sell your product. Many entrepreneurs, when starting a business, want to be the brains behind the organisation. They want to build the design and the product but do not want to sell it.
It is your product, after all, and no one knows it better than you. You need to know as well as explain why it is necessary for your target market to buy it.
Before you can launch your product into the market, it is necessary that you know the ecosystem in which your product functions. Your electronics product would consist of several parts like batteries, raw materials, other components, and so on. You must have a thorough knowledge of the essential parts. The reason behind it is, if you have a part that is particularly difficult to source and will render your product useless, it will subsequently slump your value.
You need to ensure that the whole ecosystem does exist. If your product has replaceable parts, you will have to make sure that the supplier supplies those parts, and a supply chain is arranged for those parts. The importance of this step can especially be seen today when a pandemic has halted the production of major electronics brands and has triggered a major scarcity of chips in the electronics market.
Tamboli adds, “You want to make sure that the ecosystem is resilient. Without any appropriate ecosystem, people will find it difficult to buy your product. And then your sales will suffer, which means fewer customers, less value, and hence lower valuation.”
To understand what are the assets that you lack, simply ask yourself one question: What/who is it in your organisation that is causing a bottleneck and stopping it from effectively functioning?
Say, if your work stops when your software developer is not available for a day, it means his absence is causing an assets deficiency. You need to improve the system and the process to remove the deficiency. It may be a temporary support system, like a stand-by substitute. The answer may be different depending upon your circumstances and your context in the business. But there needs to be an answer.
There are other things that count as assets when determining the value of your start-up in the market. Your core product and the methodology you use to develop it becomes your IP. Your software system that you use to operate your business (it could be your CRM, accounting system, logistics, etc) could be another one.
Your sales and marketing process is also crucial towards raising the value of your start-up. Questions like how you get your sales leads, how your sales cycle works, what process does a salesperson follow, how are they selling it and to whom, are all important questions to answer when trying to seek investors for the company. Answers to all these questions would highlight how efficiently your product is sold in the market, which further strengthens your position in the market.
“How will you position your company? If you are a B2B supplier, are you an integrator or an aggregator, or something else? How does your company brand show up in the market, and how will you maintain that positioning for a longer period in the market? This is important from investors’ perspective because if they do not know where your company fits in the market, they may evaluate it incorrectly. It could also mean that you get a lower valuation, or worse they may not be interested at all,” informs Tamboli.
Once you have a solid product, a functioning operating system, and a clear idea of other tangible and intangible assets, it is time to finally build a good team. Creating a good team may seem like a big investment, but it is totally worth it because they are the people who will help your start-up gain maximum revenue.
“First of all, you need the operations team to deliver. Then you need the admin team to support the operations. After that comes the marketing and sales team, etc. And by now you will have all the systems that the entire team can use to function effectively,” according to Tamboli.
When we talk about marketing, it does not just mean creating fancy advertisements or flyers or content on social media platforms, explains Tamboli. He says, “Content marketing is much more than creating superficial content for marketing. It is also about creating the content to maintain your product.”
For instance, having a video about starting your product and using it may seem trivial, but you would be surprised to know that it can work wonders for your start-up. It saves you the hassle of replying to hundreds of mails and calls from confused customers.
Tamboli explains, “A thoughtfully created content can be highly useful to maintain, sustain, and amplify the core product in the market. You will save time and resources for trivial, repetitive activities.”
Another benefit of this type of content, adds Tamboli, is that it gives comfort to the buyer. “For example, if something goes wrong, as a buyer I want to know what to do. To me, if I know, it means the product is reliable. If I do not know how to change the battery or deal with routine damage, most likely, I won’t be inclined to buy it,” as per Tamboli.
Adding the final touch
Now that you have done everything, how do you finally know that you have achieved everything you could?
“The most important asset test of a great and established brand is the question: Is it easy to rebrand? Because when a brand is solid and pervasive, it almost becomes difficult to rebrand. If you answer yes to the question, it most likely means that your brand is not solid yet. And if you say no that means you are getting there,” says Tamboli.
With this step, you have arrived at a conclusion towards leveraging your start-up value, which means it is time to finally reap the benefits of your hard work. You now need to hire a chartered accountant to assess the value of your company.
There are some common assets that every electronics start-up would have at this stage like a unique circuit design, or software that cannot be copied, or a trademark or name, or a particular design, purchase orders, and so on. Everything that you add together increases the total valuation.
“A formal valuation is difficult to contest and argue. Otherwise, it is your word against the investors’. And you know it is not a balanced conversation,” Tamboli adds finally.
All of this might seem tedious, and it might be alluring to skip out or jump between stages when building your start-up, but it will only slow down your progress. Following the sequence is imperative if you wish to raise the value of your start-up.
Now that you have the knowledge, it is time to start hustling, go ahead and build those assets. Soon you will start seeing the fruits of your hard work. When you keep building the product and associated services you will see that the valuation and the way people look at your start-up will be quite different.
Anand Tamboli is a serial entrepreneur, speaker, award-winning author, and an emerging-technology thought leader