Assessing the Value of High Tech Companies

In a recent post, long-time friend and colleague Michael D’Eath speculated about how the acquisition landscape is changing, especially the extent to which roll-ups seem to be an increasingly frequent exit path for startups. Implicit in this process, of course, is how the startup will be evaluated.

A key component of the 20/20 Outlook process is assessing value in the eyes of potential acquirers. A value analysis framework I’ve found helpful consists of a total of 12 different attributes rated as “strong,”“credible,” “limited,” or “none.” In the diagram below, the 12 areas are built in 4 categories from the bottom up, starting with how flexible, patentable, and scalable the company’s technology is (“Credible Technology”).

Value Analysis Framework

Secondly, market credibility is assessed for how established the company is, the strength of the initial customer base, and how capable the company is in successfully delivering a solution (“Credible Market”).

Next, the health of the business is rated in three areas: vertical packaging, repeatable sales model, and repeatable delivery (“Credible Business”).

And finally, we make an analysis of progress in gaining a good reputation with the analyst community, achieving broad scale customer adoption, and market thought leadership is made (“Market Dominance”).

Assessing the current state of each attribute can highlight areas of weakness that need attention and perhaps more resources, as shown in this example.

Value Analysis Framework example

With respect to Credible Technology, this theoretical company has flexible and patentable technology that is still somewhat limited in its scalability. It’s in an emerging market (i.e. established market = limited) that hasn’t quite broken through to mainstream (i.e. still low on the Gartner hype cycle). I won’t drag you through each attribute, but you can clearly differentiate those that are driving up value and that need attention.

About Bob Barker
Bob Barker is a trusted advisor to CEOs, helping them identify, define, and execute new growth-accelerating opportunities. He also shares ideas on LinkedIn (robertgbarker), in guest posts on related blogs, and in industry publications. Contact him via email at bob@2020outlook.com.

Comments

3 Responses to “Assessing the Value of High Tech Companies”
  1. Mark Baran says:

    I think this is one of the better graphical representations that I’ve seen representing the challenges of building a new technology business, especially if you are in the early adopter stage of the cycle. Regardless of future M&A goals, these building blocks are essential for building a viable business.

    The real inherent trick of course, is to garner enough resources (financial, staff, development, etc.) to be able to chip away at each block.

    This model does however, provide a good framework to help the CEO think about all of the tasks involved and how best to move towards achieving each individual “goal.”

  2. Mark Piening says:

    Very interesting ideas Bob. This is a great way to focus on creating intrinsic value while managing the balance between the growth and exit options. Thanks for sharing.

    It strikes me that there is a time dimension that could be applied to help understand when to emphasize or accomplish each “box”. Is there an intentional hierarchy that is time sequenced, and does that sequence depend on the market segment or technology? It can feel overwhelmig to think all that ness to be done to accomplish each of these.

    By applying the model to some recent experiences and from reflecting on peer companies around us, I can see how some of the boxes deserve less attention early and are foundation elements later to catalyze or support the others Just something to consider…

  3. Bob Barker says:

    You’ve raised a critical point. It needs more thought, but off the top it’s pretty clear that the importance of some of the factors are vary according to company’s maturity and the maturity of its market and competitors.

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!