How stupid is your website?
Honestly – is your company priceless?
You will make mistakes. Expect that others will too and judge each proposal on its own merit and not by the reputation of the author.
“Yes” to Invest?
If you are investing time and / or money into a company or a project, what is most likely to make you say “yes”? In all probability, the main promoter of the project is going to have a huge influence on your decision. “People do business with people”, after all. But you should find a way to evaluate an important investment that removes emotion from the equation, and ideally you should do so before you are faced with making an actual decision.
We have recently seen a lot of hype around the valuation of Facebook, and doubtless many investors justify an unprecedented price to sales ratio with the rationale “half a billion people can’t be wrong”. However, all those Facebook users aren’t putting their hard earned cash into Facebook, and most of them never buy anything from Facebook. Facebook should be risk evaluated as an investment in the same way as any other investment. It may well be that Facebook is a good investment, but it can’t be such at each and every share price. Facebook isn’t priceless.
Priceless or Over-priced?
However, investors are often swayed by numbers that don’t matter and by hype. None of the following are any indication of the sustainable profitability of the company, and if your investment decision in made solely on these factors, well…
Prestigious Board members and / or senior management
Lots of media attention
Enormous social media followings / viral campaign success(es)
Past glories of any kind!
As we have seen in Ireland these past few years, even respected bankers can get it wrong.
The Price is Right
Here are four price criteria for successful investors
Are you investing more than you can afford to lose?
When you invest in shares, you really can lose it all.
What is the company being valued at?
So many investors simply invest the maximum amount of money that they have available / can afford to lose. However, no company is priceless and really there is an upper valuation limit beyond which it would be folly to go. This is how bubbles are created, and all bubbles burst eventually. Remember the dot com bubble? The property bubble? The banking bubble? Who wants to be left holding share certificates worth less than what you paid for them?
Is there a finance, profit and marketing strategy in place?
The investment prospectus should make sense to you, and should show precisely how and where the company plans to make money. Competitors should also be evaluated. The company should demonstrate that they have access to enough funds to trade and grow until they are in profit, (and funds thereafter).
Is there a competent management team in place?
Companies are only as successful as the management team and staff that populates it. So people are vitally important, yes. But, the people involved can only be one part of your evaluation because:
You’ll make mistakes. Expect that others will too & judge each proposal on its own merit and not by the reputation of the author.
My opening quotation above was featured in a project to celebrate 100 years of International Women’s Day in 2011. The project, known on twitter as #100vioicesbiz and the brainchild of Krishna De, involved the compilation of tweetable nuggets of advice from 100 business women around the globe. You can read all 100 quotes in the SlideShare presentation below.
100 Voices In Business – Celebrating 100 Years Of International Women’s Day
You can follow the women featured in #100voicesbiz on twitter, simply by following my list.
What other tips would you give to a would-be investor? Please let us know in the comments below!
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