“50% of Shopify businesses are worth $0” - Fan Bi
“95% of eCommerce businesses are worth $0” - Taylor Holiday
As founders, how do we determine the “value” of our business?
We know the financial way, which Fan and Taylor are referring to above. We take our EBITDA (maybe our sales if lucky) and apply a multiple and voila, we have a valuation. As everyone points out, this is predicated on even being able to find a buyer. So even if we have good or even OK businesses, if there are no buyers, there is no valuation.
That is one framework for valuation. I create an asset. Someone wants to buy that asset. I sell the asset. And under that framework, I agree with Fan and Taylor.
But there is another framework we don’t talk about enough that I suspect motivates nearly all of us founders and that is our ability to create wealth over our careers.
More than anything, brand building is an apprenticeship. It’s hard earned knowledge accumulated through experience and close observation of others. It’s experimentation and failure. It’s second, third and thirty-ninth tries. Repeated small tweaks and occasional big swings.
And we have all experienced the benefits of that learning process. We make a decision or a call that just feels right and it works out brilliantly, better than expected. We made more money or avoided a big mistake. The value is undeniable.
In that context, what is your brand worth?
The answer doesn’t require any fancy math, but it does require being honest with yourself in answering two questions.
- Am I making enough now, or can I make enough in the near future to continue this course? We are trying to avoid mistakes of going into debt (or too much debt).
- Am I learning enough fast enough? It’s an apprenticeship. For everything you think you know, there are 10X nuances you have yet to learn. Are you improving fast enough such that you can apply these learnings to your current brand or to a new brand?
Your only asset is your time and the only way to leverage your time is through increased knowledge.
So, if the answer to either of these questions is no, then it’s time to move on because what we are really doing here is weighing alternatives. You are determining the opportunity cost of your current course.
Could I be learning more, faster (i.e. improving myself) somewhere else and be making more money while I do it?
If you are committed to the journey of brand building, then I think you have to view meaningful exits as options. In a very small number of cases that option is worth hundreds of millions to you; in some slightly higher percentage of cases that option is worth tens of millions and single millions and in most of the cases that option is worth zero. In other words, monetizing your apprenticeship only through exits has low odds.
There are some founders who only want to chase exits. That’s fine. But I would argue that over a career, the smarter play is to maximize the amount and speed of learning and monetize that increased learnings through steady cash distributions while maintaining your windfall optionality.
To sum up, your brand may have zero value to others, but may have enormous value to you. So set the right frame, ask the questions above and answer honestly.