What You Need vs. What It’s WorthJuly 25th, 2011 by Michael Kwan
Let’s take the example of an Internet startup. For someone to get that off the ground, they’ll likely need some money to register a domain, pay for hosting, hire a web designer, hire a web coder, hire a copywriter, and so forth. This all costs money and it’s what this person would need if he or she wanted to move forward. That’s what the entrepreneur needs to get started.
But that’s not the same as how much this “company” is worth.
At this point, the business is little more than just an idea. To an investor, this is a huge gamble. With no proven revenue stream, the business is effectively worth nothing. The investor is left asking, “Where is your value?” What’s in it for me? How will I get a return on my investment?
A prime example of this would be a freelance writing business like mine. Sure, it generates enough money for me to make a reasonably comfortable income, but it wouldn’t make nearly as much sense for an outside investor. I am necessarily limited by time, as I am just one person. I may need money for this project or that, but it’s not what it’s worth to an investor.
On the flip side, let’s say that I wanted to start a course to teach other people how to become professional writers. Let’s say that I already had a few sets of students come and go. If that were the case, then this could be suitable for outside investment if I wanted the money to be used for larger venues or more course materials. That’s an entirely different kind of business.
Just the very business of providing a service works in much the same way. I may want to earn a certain amount of money for completing a certain project, but that doesn’t mean that the potential client feels that project is worth that amount of money. Again, it comes down to the old adage: What’s in it for me? Where is the value?
The value of the product, service, or business needs to be disassociated from the needs of the person providing that product, service, or business. These are two entirely different things.
Filed under Money.