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You're missing something. From the post: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k. and > Result: I worked 35-40

You're missing something. From the post: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k. and > Result: I worked 35-40 hours per week, a reduction from previous years, and traveled more than any previous year. This is a person who is effectively full-time CEO of this business and whose market salary is likely at least $236k. If they sold the business, the new owners would have to pay someone else to put in those 35 hours. Maybe the new owner could employ a less-skilled manager and pay them less, or maybe there's still lots of potential growth or room to cut costs, but that's all quite speculative: right now the business has a profit, and therefore a valuation, closer to zero.

avinoth 3y ago
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
- deleted 3y ago
  [deleted]
- awhitby 3y ago
  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.
- gnicholas 3y ago
  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.
  - mryall 3y ago
    He did pay himself a salary in 2023. See the P&L included in TFA.
    - gnicholas 3y ago
      The article says: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k I assume the salary line is for other people's salary.
  - avinoth 3y ago
    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)
- danielmarkbruce 3y ago
  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.
- Aurornis 3y ago
  > 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.
tgtweak 3y ago
That is true, and you would assume that if he sold he would either work retained and draw a salary or hire someone at a fair cost. I think the company is too early to realistically sell - but I don't think the value today is zero - it's likely worth at least 2x revenue today given growth potential. Look at lantronix (nasdaq:ltrx) - the company that makes the "spider" product line - the original strap-on oob/ipmi. Worth $160M while doing $120M of revenue and losing $9M/year.
- throwaway2037 3y ago
  I am disappointed that NASDAQ and US securities regulators allows companies without audited profits to go public. "Worth" 160M? Not to me.
csa 3y ago
> right now the business has a profit, and therefore a valuation, closer to zero You’re thinking of this like an engineer rather than a business person. 1. When selling a business like this, the $236k would be called SDI or SDE (seller discretionary income/earnings). 2. The buyer determines what, if any, of that SDE will need to go to paying someone to do what the seller does. These duties could be assumed by the buyer, they could be assumed by existing people the buyer employees, the tasks could be reduced or eliminated, etc. 3. Based on 2, the buyer will typically adjust the earnings multiple that they are willing to buy at. 4. For complex businesses that need someone doing one or more specific roles, the listing agency for the business, if good, will encourage the seller to fill certain roles to improve the overall salability of the business and multiple of earnings that it will be sold at. 5. Without really looking into the business, I’m almost certain that it can be sold for much closer to $1m (or more!) than to your suggestion of (edit) closer to $0.
- gnicholas 3y ago
  GP does not suggest a valuation of zero. GP says that the profit and valuation is closer to zero. It is not crystal clear if this means "closer to zero than it is to $236k" or "closer to zero than $236k is" (i.e., less than $236k). The second is undoubtedly true. The first may also be true, but would depend on the cost at which the labor can be outsourced reliably, and what oversight would need to be done of these outsourced activities.
  - csa 3y ago
    Fair enough. I changed my comment to “closer to $0”. I still think that even talking about or towards $0 is bizarre. Saying something like “less than $236k” would have been much more meaningful if op meant either thing you said.
  - refulgentis 3y ago
    The other poster is right, if you told someone who knows about business valuations about this conversation they'd be confused and bemused. Easiest place to start is valuations arent capped at one year of profit, or last years profit...the silly mistake is the one year thing, the more advanced mistake is looking at profit instead of cash flow.
j45 3y ago
Valuations for vc’s acquiring is very different than private equity firms acquiring a business like this. If you build something that makes 100k/y it can sell for 7-15x or that.

avinoth 3y ago

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

deleted 3y ago
[deleted]
awhitby 3y ago
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.
gnicholas 3y ago
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.
- mryall 3y ago
  He did pay himself a salary in 2023. See the P&L included in TFA.
  - gnicholas 3y ago
    The article says: > I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k I assume the salary line is for other people's salary.
- avinoth 3y ago
  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)
danielmarkbruce 3y ago
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.
Aurornis 3y ago
> 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.

tgtweak 3y ago

That is true, and you would assume that if he sold he would either work retained and draw a salary or hire someone at a fair cost. I think the company is too early to realistically sell - but I don't think the value today is zero - it's likely worth at least 2x revenue today given growth potential. Look at lantronix (nasdaq:ltrx) - the company that makes the "spider" product line - the original strap-on oob/ipmi. Worth $160M while doing $120M of revenue and losing $9M/year.

throwaway2037 3y ago
I am disappointed that NASDAQ and US securities regulators allows companies without audited profits to go public. "Worth" 160M? Not to me.

csa 3y ago

> right now the business has a profit, and therefore a valuation, closer to zero You’re thinking of this like an engineer rather than a business person. 1. When selling a business like this, the $236k would be called SDI or SDE (seller discretionary income/earnings). 2. The buyer determines what, if any, of that SDE will need to go to paying someone to do what the seller does. These duties could be assumed by the buyer, they could be assumed by existing people the buyer employees, the tasks could be reduced or eliminated, etc. 3. Based on 2, the buyer will typically adjust the earnings multiple that they are willing to buy at. 4. For complex businesses that need someone doing one or more specific roles, the listing agency for the business, if good, will encourage the seller to fill certain roles to improve the overall salability of the business and multiple of earnings that it will be sold at. 5. Without really looking into the business, I’m almost certain that it can be sold for much closer to $1m (or more!) than to your suggestion of (edit) closer to $0.

gnicholas 3y ago
GP does not suggest a valuation of zero. GP says that the profit and valuation is closer to zero. It is not crystal clear if this means "closer to zero than it is to $236k" or "closer to zero than $236k is" (i.e., less than $236k). The second is undoubtedly true. The first may also be true, but would depend on the cost at which the labor can be outsourced reliably, and what oversight would need to be done of these outsourced activities.
- csa 3y ago
  Fair enough. I changed my comment to “closer to $0”. I still think that even talking about or towards $0 is bizarre. Saying something like “less than $236k” would have been much more meaningful if op meant either thing you said.
- refulgentis 3y ago
  The other poster is right, if you told someone who knows about business valuations about this conversation they'd be confused and bemused. Easiest place to start is valuations arent capped at one year of profit, or last years profit...the silly mistake is the one year thing, the more advanced mistake is looking at profit instead of cash flow.

j45 3y ago

Valuations for vc’s acquiring is very different than private equity firms acquiring a business like this. If you build something that makes 100k/y it can sell for 7-15x or that.