How I Value Companies (or Websites)

In a meeting with Susan this morning we started talking about what interests me about certain ideas, and how I judge websites to be a success. It’s something I hadn’t explicitly thought about until she asked me, but I’m pretty happy with how I answered.

For years now my friend Jeff and I have been discussing new business ideas. On a daily basis one of us comes up with an idea for a website and the other one instantly tears it apart. It’s a pretty fun game. Most of the ideas I come up with I trash, but there’s always the few that make it though.

All of my ideas that I’ve gone forward with can answer the main question:

What Problem Does This Solve?

I think that’s a good question to ask about any new website, company, or startup. You can have the coolest technology or the most creative domain name, but at the end of the day it all comes down to being useful - solving a problem.

Building something useful though doesn’t necessarily mean you’ve built something successful. After you can answer the problem question there’s still one more question to ask:

What’s the path to revenue?

Now, I measure success in a way that most people don’t. I’d rather see 100,000 users using a product than $100,000 invested in that product. I know this sounds odd seeing that I just talked about revenue, but it’s not. Investment is not revenue. The true measure of success is how well you can make a profit off of your user base. (If you don’t yet have a user base go back to question 1.)

As Dave Thomas once said, “Profit is not a dirty word.” Let’s face it, if you’ve built something useful it’s going to cost you money to run. How can you make a profit off of it?

If you can answer those two questions, then you’ve got yourself a successful company.

Add comment August 19th, 2008