In today’s ‘hungaama’ around value of a business, it is quite normal to get carried away between creating a long term sustainable value for a business as against ‘milking’ a quick opportunity of generating a high share price for promoters to make a windfall gain. Needless to say the media attention on the latter plus the common man’s constant fascination for rags to riches stories, significantly contribute to the hype. (e.g. Flipkart, Snapdeal etc.).
Every start up organisation or entrepreneur must have its thinking clear around the long term objectives as well as the core purpose of the venture. Profitability and growth are certainly the key foundations – without cash there is no show. But that alone does not drive the true value of the business.
The eco system is larger than just profitability and growth. True valuation of a business is driven by multiple factors
- What is the differentiation provided to the customer, be it a product or a service
- Quality of the offering
- Price at which it is offered
- Longevity viz., if I buy this product how long will this last (most of the Indian homes will have Godrej steel cupboards which have seen a few generations and still in tip top condition)
- Innovation
A sustained focus on the above will ensure generating a long term value for a business.