Valuing a profit-generating business that's making $1m in revenue as zero is reductive.
Valuation of business isn't necessarily determined by profits (perhaps for commodity businesses), It's just one of the metric. This is a business that has strong operations, product, assets, and IP, honestly quite surprised with this take.
Also, a nit fwiw, you automatically assumed the entire profit of the business is the market salary for the person running this business
I don't really disagree. It's a naive analysis, but ignoring the opportunity cost of the time the owners put into a business, which I was replying to, is even more naive, and yet an extremely common mistake small business people make.
We don't know that it is profit-generating, since the author doesn't take a salary. As for the assumption that the profit would be soaked up by the market salary for the founder, the fact that he's a former Google engineer or whatever is a pretty decent indication that this is true.
I would agree that most people would take some job flexibility/autonomy in lieu of part of their bigco salary, but my guess is that this particular Xoogler would be making well more than $236k (including stock) if he had stayed at Google.
EDIT: that doesn't mean he should have stayed at Google, just that his market salary would very likely soak up all of the profits this year. If he can keep up the growth (and ramp down his hours), then it would be clearer that the enterprise could throw of cash even after paying for all the labor.
That’s the thing though, it’s a Google engineer’s market salary, and likely the author’s as well. But the OP was drawing the conclusion that whoever’s running the business has to be paid the same amount, that’s what I wanted to address.
> I would agree that most people would take some job flexibility/autonomy in lieu of part of their bigco salary
This is one of the point the author has repeatedly stressed the importance of and I very much agree as well. The chance to chart your own journey and the excitement a business could bring is anyday more valuable than the predictable path of employment for many (including myself)
> Also, a nit fwiw, you automatically assumed the entire profit of the business is the market salary for the person running this business
Not really a big assumption given that the person is capable of operating an entire software and hardware business by themself.
It’s more complicated than that, though: The salary someone receives from a company isn’t 100% passed through untouched. To pay everything from taxes to benefits, the most they could realistically expect to take in equivalent compensation would be closer to $150K (approximate), which is actually below market rate just about anywhere for someone with these qualifications.
The point is it isn't profit generating by any reasonable definition of profit and doesn't have some obvious path to get there.
Taking into account all the things you mention, many reasonable people who spend time buying and selling businesses all day would value this business at zero.
The nit is generous - 236k is not going to cover the iq points and hard work required to do the role of this owner.
Valuation of business isn't necessarily determined by profits (perhaps for commodity businesses), It's just one of the metric. This is a business that has strong operations, product, assets, and IP, honestly quite surprised with this take.
Also, a nit fwiw, you automatically assumed the entire profit of the business is the market salary for the person running this business