Launching a Product - How do you automate your communication with customers?

Hello, my name is Ian Peterman. I'm the CEO and founder of Peterman Design Firm, and today I want to talk about how to prove valuation when you're pre-revenue. So obviously, if you're making money with your business, then this doesn't really apply to you. But maybe you are making money, but you're not actually cash positive. And so this can be involved in that. But really, the focus of this is you're pre-revenue, you're probably not making any sales at all, but you are a business and you're trying to prove valuation, prove that you have value, whether it's to, you know, an angel investor or someone else. These are things that you want to keep in mind and think about that just over the years of working with startups. These are things that constantly get brought up when talking to a financial advisor or talking to investors or angel investors that are the things that they ask for or remind people that they can count as an actual asset and providing and valuing and adding up the value of a business. So first area is hard assets. This one is pretty, uh, common knowledge. This is the most obvious one. You know, if your business bought a 3D printer, then you have a 3D printer and it has a certain value attached to it. Um, the— that easily is addable. It's very easy to track. You can have receipts for purchases, things like that. Those are all very easy to add up, try track and say, okay, well, we have all this equipment, we have all these tools, we have all this raw material, whatever it is, you can pretty easily add it up. And that's something that people first think of is, oh, what do I physically have of value that is attached to the business that I can count as value? Now, the thing to think about with that though, is that yeah, you have a 3D printer, but what does that also save you? For example, you know, do you—is it 40% cheaper than going outside and hiring a company and paying for a prototyping company or somebody else to do the 3D printing? Do you save that much money? What does that? What does that actual value add to your business in addition to just the hard? Well, I spent $10,000 on it. Great, but is it saving you a whole bunch of money? What is that? What does that look like? The second is IP assets. What is your intellectual property? And this— people, you know, always think about patents, but also think about trademarks, think about copyrights. Anything that has any kind of intellectual property, anything that has been documented, you've put money into that could be sold, is something that you need to add up and evaluate. And There are companies, there's law firms and patent attorneys and things like that that can look at all of your IP and evaluate it based on current markets. What does an idea like this cost? What is its potential revenue, market share, all those kind of things. They can put together a package and say, okay, well, your IP is worth X number of dollars as of this date. Obviously the market could change and 6 months later it could be worth, you know, a quarter of it. It could also change and it could be worth triple in 6 months. It all just depends. But that way you have some kind of basis of, okay, well, right now based on everything, here's what it seems like. And you, especially with that, you have a third party validating it. And so that allows you to have a little bit more weight than just saying, oh, well, I think it's worth $3 million. You can say, well, all of our IP has been assessed by this firm and they have said that it's worth X. And of course, investors will bring in their own firms and teams and evaluate on their own. But you have at least a starting point and you can then debate on points why any discrepancy between the valuation. Value based on previous investment, number 3. Any previous investment will increase the value or, or help define the value, because if somebody invests in at a certain value, then you're saying that that value is the minimum that it is worth. And so you want to be looking at, has anybody invested anything? Have you invested anything? So I've talked to a lot of startups that don't always count what they have invested. And something that you need to count, especially if you're the founder or part of the initial team that put time in and were not paid for it. What is the time that you've put into it valued at? So an investment isn't always cash. Sometimes it is— I brought this intellectual property in that is owned by somebody else, but I'm giving license because I'm involved with this. I'm not charging a license fee. Well, what is that worth? How much time have you spent? What is your, what is your normal hourly rate? Or what is the hourly rate of someone who would have done everything that you've done? Well, all of that is time spent in investing into the company. And so, especially if you can document that with some kind of time tracking, you're like, okay, well, these are the number of hours I've spent and this is my rate. Therefore, my investment so far has been X number of dollars based on time spent in. So that's something that almost every startup I've talked to, if this— if it's their first time raising any capital, they almost never think about calculating in personal time spent that's unpaid. Because it's— you— a lot of people don't think about that, but it is an investment and it is your investment. Even if you put cash in as well, count the time that you've put in. Fourth one is projections. So this is a little bit less about proving valuation as showing potential valuation and what the company could be worth. And this is ideally third-party guided, you know, work with a firm that can help look at, you know, what are the costs, how much can you produce, what does the product look like, what does the market look like. You know, this is, this is all kind of related. And having a third party, just like with IP assets, you want to have a third party say, yeah, this, these are some projections. This is what we think, you know, the company can sell in terms of products sold. And this is what we're projecting out. Now, projections, there's semi-standard formulas, and every investor I've ever talked to has their own little formula for how they do projections based on, you know, usually based on actual sales. But sometimes you can actually take, okay, well, this is the industry, this is a typical projection for a company of our size, scale it down for having no sales yet, and you can adjust it. So there's always a formula in order to use projections. It has not as much weight though, unless you already have sales. So if you are in that hole, you're making some money because you are selling, but you're not cash positive yet because maybe you're not selling enough, then you can use those sales numbers and create a more solid projection of here's what we can do, here's what we're doing now, here's the marketing required to make this projection happen. And here's all the, here's all the factors to make that projection a reality, then you have a little bit more of a strategic plan. That's where projections with plans and detailed roadmaps and things like that, like when we put together roadmap and feasibility, one part of that is projecting out, okay, well, you want to sell 10,000 units this year. Well, this is about what it's going to take to do so. And And so figuring out what that looks like can help that projection turn into a— we're asking for an investment because we want to make this projection happen, and it's going to take X number of dollars to get there. And then this is the point where we go into cash positive. So projections are usually part of valuation, but sometimes they aren't as valuable as in other situations. The last one that is really important here, number 5, people don't think about it as much, but pre-orders and future purchase orders, even if they're conditional purchase orders. These are guarantees. Oftentimes this is guaranteed by a business. So if you go to a resale model and you have distributor a distributor of some kind that's saying, yeah, we'll buy your product, we'll buy 10,000 units at this date and at this price, conditionally for this. You can show that and say, well, we have these orders, we just need to be able to deliver their requirements. So that could be something like, you know, your standard product, but it needs to come in special color for them because they want it their color, for example. That is something that you can take and you can bring it to an investor. And depending on how solid the relationship, even banks have— I've seen this happen where banks will actually provide loans based on POs. That's PO loaning. You can do that depending on, you know, there's a lot of factors that go into it. So don't assume that every bank will just say yes to that, but Those are serious enough that with the right purchase orders, even if they're future ones, you can receive not just investment but actual bank loans against those because they're a lot more guaranteed and they're backed by an actual separate third party. And that's kind of the theme here is third party will help prove valuation because a third party isn't going to want to put their neck out there and say that something is true. without actually being able to back it up, because then it looks bad for them. So looking at preorders, future orders, securing those are really important. And if you have any of those, make sure you include those when you're putting together a valuation. Even if you are in a— getting— I'm getting just an angel investment, just a little bit, those can really help because it's also a risk mitigation. And part of that is in the valuation formula that everybody has, you know, whatever their own valuation is, part of it is a risk analysis. And if you have preorders, if you have POs down the road that are signed, then that helps cut the risk. And, you know, it doesn't necessarily make the valuation number go up, but the risk factor attached to that valuation And any money somebody might put in is decreased. And so they kind of play together in that way. So I hope this helps you with some ideas on how to prove valuation when you're pre-revenue, and even if you're in that space of, you know, pre-revenue but you're not positive cash flow yet. Hey, thanks for watching. We really appreciate our viewers, and if you haven't subscribed yet, please do subscribe to our channel so you can get more great videos like this in your feed. And like the video. If you want to learn more about the Peterman Design Firm, please check us out on our website, petermanfirm.com. You'll find link and information in the description, and of course we're on all social media as well, so check us out there. All right, thank you.