What constitutes a good idea for a startup business? (Part 3)

Worth the effort.

Entrepreneurs can have many different goals in starting businesses. Two popular approaches are:

1.    Grow at a modest pace, with a focus on getting profitable quickly and staying that way. Our PR firm might follow this model. It doesn’t have much chance of reaching a $100 MM valuation and getting snapped up in an acquisition within just a few years. On the other hand, the founder might be able to pull lots of money out of the business each year, since the company will throw off cash, and won’t need to reinvest it all to achieve growth. If you take this approach, make sure the opportunity is big enough to give you a good chance of paying yourself enough money to make you happy.

2.    Build to scale and flip. While our pen company probably has a tougher chance of getting off the ground, and of garnering significant market share, it’s got a small shot and a big opportunity. Maybe that pen will become the latest fad. Stranger things have happened. If so, the founder might be able to sell the company to a bigger player in their market, turning her equity into a big pile of cash. Along the way, she’ll probably take minimal compensation. Lots of Internet companies have followed this strategy. Their successes tend to be binary… They’ll either make it big, or make next to nothing. If you are building one of these, think carefully about how much it could be worth, and when you’ll reach milestones that will make it attractive to buyers. Also make sure there are indeed buyers for your type of business out there, and that they are actively making acquisitions.

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