Valuation Roundtable Part Three transcription

Valuation Roundtable Part 3 transcription

By Fiona Boyd |

This post is the transcription of the videopost Valuation Roundtable Part 3 and features Scott Kilmartin, founder of Haul, Gary Graco, partner at Nexia ASR, David Eedle co-founder of Arts Hub and is moderated by Fiona Boyd co-author of Niche Content Millionaire.

Fiona: David, what was your view on Find a Babysitter? Because we’ve been members for the whole time, of the service…

David: I think we were just about customer number two, or customer number three, something like that. Um – I take great heart, because I think what it does is remind us that business comes in all shapes and sizes, there are a hundred million dollar business deals being done every day and fifty million, and twenty million, but you can still have a couple who sit down in their lounge room one day and go, we have an idea…and one of them maybe has the marketing end of it or the product end of it, and maybe the other half has got some technical skills, or at least there’s a match between a couple, or two or three people, there’s a match of skills, they sit down, they come up with the idea, they essentially do all the work themselves, and they’re able to build a perfectly sound, viable, profitable business in, over three or four years, and then walk with what is clearly a perfectly nice exit for four years work.

They were doing it in a relatively small niche, it’s a pretty specific little area that they’re working in. It also reminds us that there are a million and one of those little nichey moments, in life and in business, and therefore there are literally an infinite number of little ideas that can be exploited. I think you’re actually going to see a rise of those, in the future. If you look back, say, twenty years ago, or even ten years, the costs to build, the capital, the infrastructure, the resources you needed to build a business, often put it out of reach of people…or it was a case of mortgaging your house or something like that, you know, you needed to raise money. These days you don’t need to raise money.

Working out the value of your internet business can depend on many factors.

In a way…we were talking earlier about the lack of seed money – they joy of it is, you don’t need seed money! That’s…with any luck we’re going to put the seed funders out of business, because you can be one person sitting at home and have a bright idea. It’s not the first time. HP, the big computer company, was two guys in a garage who started building electronic…you know, putting calculators together, I think, or something like that. And you can still go to Silicon Valley, and you can still see the garage that HP was launched in – there’s a plaque, and so on, it’s extremely famous. But back then, they were a complete exception in terms of, in one way…I mean I can think of, maybe Apple, another ten years later, a couple of guys in a garage. But they were exceptions. And now…thanks to the net, you have, about six billion people sitting in front of a computer going, I’ve got a bright idea, and I can actually do something about it and turn it into a business.

Gary: David, I think the other thing that internet communication’s done is actually enable people to reach out for other people to add to their ideas…

David: …absolutely…

Gary: …you go back fifteen or twenty years ago, the only access you had was within your knowledge centre of friends or business associates or whatever it might be, whereas now I can talk to someone – well not even talk to someone – someone sitting in the US and just adding to what my concept is – and that’s it.

David: I think that’s a really fascinating notion…the fact that you can literally reach out to anybody anywhere in the world and ask for help or advice or resource…Skype means you can do it for free, I work with a company that has people in UK, USA, India and Australia. We talk once or twice a week, people in all four countries come together to talk about the business.

Scott: Almost zero cost start up…if you’ve got a computer, which almost everyone has, you can literally buy a domain name for ten bucks, get rolling, get some help from your friends, you don’t need huge capital expenditure, you don’t need to go and buy as much stuff as you used to…and the great thing is, it’s low or zero risk. If it doesn’t work, it doesn’t really matter.

David: You don’t even need an office.

Scott: Especially in the service space…the services are so well suited to that.

David: There’s an Australian company, internet firm, called Remember the Milk, they’re like an online to-do list service, they started a few years ago…and actually somebody was telling me the other day that they’d moved their office to San Francisco, and I was just curious about that – oh, hang on, maybe there’s another bunch of Australians in San Francisco I should look up. And then I checked out online…they don’t have an office! They have about six people employed, you know, working in the business, and they all live in different countries – nearly all live in different countries, they don’t have an office, they don’t have a desk…

Scott: …Skype number in San Francisco…

David: They don’t, they use a private IRC channel, so that is a chat channel, the ability to chat in private online, and there’s no desk, there’s no receptionist, there’s no water cooler, there’s no photocopier, and the business just doesn’t exist except on the internet.

Fiona: Gary, did you want to add to that?

Gary: It’s just the concept of the, the ability to start businesses now with online space is just reflecting on one of our clients, started up a business, electrical goods distribution. You know, they’ve managed to build that business purely on an online model out of half a dozen people in a small office, they don’t have any physical warehouse capabilities, everything is, everyone else does everything that the traditional distribution model used to do, and they don’t do any advertising, they’ve just used the ability of Google and everyone else to get the exposure, and their returns…there’s two aspects of it. One, the risks that they took on in terms of the initial investment were really about developing the web portal and all of that, which was part of their expertise. But they didn’t have to take big leases on warehouses, et cetera. And suddenly they’ve been able to start this business without significant seed capital, and yet they’ve managed to build that business pretty significantly in the space of two or three years.

Scott: And that model, generally, too, I mean, again it’s a generalisation, is much more scaleable. You can go from small size to mid size quite quickly…

David: Well, you don’t have to build a bigger warehouse each month…

Gary: Besides, what they did was they took that model, for electric goods, and they’ve moved it into a completely different area of home furnishings and various other things, so all of a sudden, the investment that they made in building that thing is gone into a completely different thing for next to nothing.

Scott: They’ve got the infrastructure, they can now move around, look for other industries where they can exploit… that’s great.

Fiona: Just on valuations, because it appears that valuations going into the future could be wildly unstable in terms of the ways we arrive at them, um, Gary, for you, what is the nuttiest business valuation you’ve ever come across?

Gary: It was one of those that, going in, we just couldn’t grapple the leverage they were able to get and what it meant, so it was a really difficult one to apply any fundamental principles to, and it had some early stage investment, but they’d actually got to the point of establishing their business model, and were actually generating money. But it was probably the most difficult one I’ve been involved with, and it was purely for stamp duty purposes apart from anything else…

David: (Laughs) Are you allowed to tell us that?

Gary: Ah, it’s alright…but yeah, Fiona, I guess getting back to your point of, will the future of the valuations, the whole methodology, what we’ve been used to…it’s like everything, everything comes back to a balance. You’ve always got things that are at the extreme both ends…the majority of things will still fit back in, because at the end of the day, people are putting up capital for you to return on their investment, and they will weigh the risks associated with one particular investment with another. A lot of people got severely burnt during the early parts of the tech boom. It’s nothing new…I actually equated the early part of the tech boom to mining companies. You go out, you suddenly do some prospecting, you tell people, oh, I think there’s some great gold in the ground, you raise, you know, millions of dollars, dig a few holes and…oh, sorry, it wasn’t there. You move on to the next one! And there was always going to be that sort of risk capital around. And what’s happening is that that risk capital is actually finding itself into a new domain called information technology. So someone’s prepared to pay a billion dollars for Twitter, while maybe it’s…

David: …they think there’s gold…

Gary: Gold, or alternatively, it costs five million dollars just to put a hole down in the ground to try and find oil, and that’s it…if you do find it, fantastic. If you don’t, move on to the next one.

Fiona: I’ve been speaking today to Gary Graco from Nexia ASR, thank you Gary.

Gary: Pleasure.

Fiona: Scott Kilmartin who’s the ringmaster and founder of Haul, with both online and offline business. And David Eedle, who writes this blog with me. Thank you everybody.

David: Thanks Fiona.

Photo: Flickr Matt Bidulph

David Eedle and Fiona Boyd share their thoughts on the myriad opportunities they see in niche business areas in their book about the startup, growth and sale of Arts Hub, Niche Content Millionaire.

Niche Content Millionaire is a downloadable eBook that tells you the true story how we made millions from subscription content and membership websites.

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