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How do you measure the success of an online business, given the current economic climate?
E.Factor is a relatively new online social networking-site that has already gone global, with a rapidly growing membership of business people and investors.
During the course of the session, the distinguished Sir Andrew Likierman discussed with upcoming entrepreneurs and SMEs the idea that a business cannot be measured by financial achievements alone.
Sir Likierman suggested that financial measurement is important, but by no means an accurate evaluation, as high amounts of cash within a business does not necessarily mean it will be successful for any given length of time.
We’ve already seen this happen with the dot.com bubble a few years ago, where start-ups were financed and valued with extraordinary amounts, only for much of them to end up going bust.
Valuations of a company can vary and are susceptible to a huge range of factors; more so, the bigger the company. For example, look at Yahoo!’s refusal to accept a $44.6bn offer from Microsoft back in May – and now, Yahoo!’s valuation is suddenly a great deal less, prompting job cuts and causing a sizeable headache for Jerry Yang and his team.
So how do you measure the success of a business – particularly online - given the current economic climate?
Businesses should be throwing other considerations into their valuations, including customer retention and satisfaction (all the more important in a recession), the net promoter score of a business and the rate of customer acquisition – again, this returns to Chris’s earlier article.
As already mentioned, a financial return for a business does hold a great deal of weight for a company, especially in ensuring it will survive, but if you take a number of hugely successful internet corporations - the Facebooks, Youtubes, Twitters and Diggs of the online world - it’s no secret that many are struggling to raise profits, or currently seem to have no real financial model. Yet, they have a far greater consumer base than most offline businesses – and can be often deemed more successful.
This could be in part due to the fact that online companies are generally rejecting the traditional business model of achieving success. Last month Facebook’s founder Mark Zuckerberg declared that "growth is primary, revenue is secondary" to the site's business goals.
Facebook is an online giant and arguably, in focusing on achieving alternative objectives, rather than economic ones, this is likely to ensure the company continues to thrive, though its $15bn valuation is debatable.
So, as the recession looms, don’t just put a value on a company by looking at the bank-balance – think of what it’s worth in other ways.
How much are your users worth?