Episode 702 | Revenue vs. Profit Multiples, When to Lower Prices, and More Listener Questions

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Feb 27, 2024

In this engaging discussion, the host dives into the nuances of startup valuations, exploring the balance between revenue and profit multiples. Listeners get insights on when to consider lowering prices and introducing bootstrapping concepts to friends. There's valuable advice on transitioning from consulting to SaaS development, including how to define your MVP. The conversation also touches upon career decisions versus entrepreneurial pursuits, making it a must-listen for aspiring founders and seasoned entrepreneurs alike.

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ADVICE

Introducing Bootstrapping

To introduce friends to bootstrapping, consider books or blog posts over podcasts.
Recommend "Start Small, Stay Small" or "The SaaS Playbook" for learning the bootstrapping philosophy.

INSIGHT

Revenue vs. Profit Valuation

Businesses under $1.5M ARR are typically valued based on profit, while larger SaaS businesses are valued based on revenue and growth.
Focus on growth over profit in the early stages to reach a higher valuation upon exit.

ADVICE

Building an MVP

Continue building your MVP solo if you're making good progress and the code is scalable.
Consider hiring a developer if you have the funds and can find a reputable one, but avoid poorly written, unscalable code.

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In episode 702, join Rob Walling for another solo adventure where he answers listener questions. He answers how to introduce friends to bootstrapping, when to lower your prices, and addresses the difference in revenue and profit multiple valuations. Rob also offers advice when weighing a career move versus building side projects and scaling your MVP.

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Topics we cover:

3:15 – How to introduce friends to entrepreneurship and bootstrapping
6:00 – When to focus on profit vs. top-line revenue
10:40 – Considerations for building, scaling, and differentiating an MVP
15:45 – Rare circumstances where you should lower prices
20:25 – Pursuing career moves vs. building on the side
23:43 – Managing cap tables and equity vesting

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If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!

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