I’ve had a bunch of interesting discussions lately about valuation metrics for a business. I know I’m straying from leadership and execution a bit here this week but bear with me as I link it in.
Unfortunately, not everyone realizes that valuation is an art, not a science.
(If you’re bored here you can stop reading but you’ll miss some really interesting stuff.)
In the technology industry, valuations have often been on the basis of numbers of users. Investors figure that if a company gets lots of subscribers for free, it can figure out how to get revenue from them later. This has led to some interesting results.
Here are some stats:
This begs the question, what is success? Is success getting the most revenue from each user in which case Google wins hand down. Or is it driving the best value per user given revenue in which case LinkedIn is the winner.
This type of analysis can dramatically affect your strategy. Do you tell your people to go after the most users, the most revenue per user that they can or the stickiest users? This directly affects success if you can figure out how to define it.