Customers, Revenues or Profits

The value of a business is the NPV of the stream of profits earned in perpetuity, right? Well, wrong. An entrepreneur needs to think in smaller time horizons, of 2-3 years, and in that phase the value may have nothing to do with profits or even revenue.

In businesses with economies of scale or network externalities like telecom, web portals, or social networking what is impotant is the number of subscribers. So while one should not go the dot com way, and keep an eye on fundamentals, a startup must always guard against being taken hostage by accountants.

Getting into a position to be a market leader in a big market is what’s important, and if you have to bleed all the way to the bank, so be it!

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