What Is That?

Berkus is a pre-revenue valuation method based exclusively on qualitative criteria, like Scorecard.

Few firms match their financial estimates, especially in the early stages, so valuation methodologies like the Berkus method are a good way to establish a valuation when the economic measures are not reliable.

How does it work?

This technique evaluates five key success factors.

• Fundamental principle

• Technology

• Execution

• Strategic alliances in its primary market

• Production, followed by sales

The Berkus technique values the business idea and four success factors. As seen in the matrix below, each of these dimensions poses a danger to the startup's success.

It assigns $0-$500,000 to each of these beginning regions. This approach enables a maximum $2.5M pre-money valuation.

This approach relies significantly on geography and uses the US as a baseline, as it differs in every country in Europe.

A set of standards for analyzing each dimension individually

Fundamental principle (or strength of the idea)

Ideas are worthless; execution matters. Most of us can relate to seeing a new business open in our area or a startup get funded and thinking, "I had this concept years ago!" Someone did it.

The concept remains. To assess the idea's viability, we must consider several criteria.

• The concept's exclusivity It is necessary to protect a product or service's concept using patents and copyrights. Additionally, it must be capable of generating large profits.

• Planned growth and growth that goes in a specific direction have a lot of potential, therefore incorporating them into a business is really advantageous.

• The ability of a concept to grow A venture's ability to generate scalable revenue is a key factor in its emergence and continuation. A startup needs a scalable idea in order to compete successfully in the market.

• The attraction of a business idea to a broad spectrum of people is significantly influenced by the current socio-political climate. Thus, the requirement for the assumption of conformity.

• Concept Validation Ideas must go through rigorous testing with a variety of audiences in order to lower risk during the implementation phase.

Technology (Prototype)

This aspect reduces startup's technological risk. How good is the startup prototype when facing cyber threats, GDPR compliance (in Europe), tech stack replication difficulty, etc.?

Execution

Check the management team's efficacy. A potential angel investor must verify the founders' experience and track record with previous ventures. Good leadership is needed to chart a ship's course.

Strategic alliances in its primary market

Existing and new relationships will play a vital role in the development of both B2B and B2C startups. What are the startup's synergies? potential ones?

Production, followed by sales (product rollout)

Startup success depends on its manufacturing and product rollout. It depends on the overall addressable market, the startup's ability to market and sell their product, and their capacity to provide consistent, high-quality support.

Example

We're now founders of EyeCaramba, a machine vision-assisted streaming platform. My imagination always goes to poor puns when naming a startup.

Since we're first-time founders and the Berkus technique depends exclusively on qualitative methods and the evaluator's skill, we ask our angel-investor acquaintance for a pre-money appraisal of EyeCaramba.

Our friend offers us the following table:

Because we're first-time founders, our pal lowered our Execution score. He knows the idea's value and that the gaming industry is red-hot, with worse startup ideas getting funded, therefore he gave the Basic value the highest value (idea).

EyeCaramba's pre-money valuation is $400,000 + $250,000 + $75,000 + $275,000 + $164,000 (1.16M). Good.

References

• https://medium.com/humble-ventures/how-angel-investors-value-pre-revenue-startups-part-iii-8271405f0774#:~:text=pre%2Drevenue%20startups.-,Berkus%20Method,potential%20of%20the%20idea%20itself.%E2%80%9D

• https://eqvista.com/berkus-valuation-method-for-startups/

• https://www.venionaire.com/early-stage-startup-valuation-part-2-the-berkus-method/

A top-down company plan facilitates decision-making and impresses investors.

A startup business plan starts with the product, the target customers, how to reach them, and how to grow the business.

Bottom-up is terrific unless venture investors fund it.

If it can prove how it can exceed $100M in sales, investors will invest. If not, the business may be wonderful, but it's not venture capital-investable.

As a rule, venture investors only fund firms that expect to reach $100M within 5 years.

Investors get nothing until an acquisition or IPO. To make up for 90% of failed investments and still generate 20% annual returns, portfolio successes must exit with a 25x return. A $20M-valued company must be acquired for $500M or more.

This requires $100M in sales (or being on a nearly vertical trajectory to get there). The company has 5 years to attain that milestone and create the requisite ROI.

This motivates venture investors (venture funds and angel investors) to hunt for $100M firms within 5 years. When you pitch investors, you outline how you'll achieve that aim.

I'm wary of pitches after seeing a million hockey sticks predicting $5M to $100M in year 5 that never materialized. Doubtful.

Startups fail because they don't have enough clients, not because they don't produce a great product. That jump from $5M to $100M never happens. The company reaches $5M or $10M, growing at 10% or 20% per year.  That's great, but not enough for a $500 million deal.

Once it becomes clear the company won’t reach orbit, investors write it off as a loss. When a corporation runs out of money, it's shut down or sold in a fire sale. The company can survive if expenses are trimmed to match revenues, but investors lose everything.

When I hear a pitch, I'm not looking for bright income projections but a viable plan to achieve them. Answer these questions in your pitch.

• Is the market size sufficient to generate $100 million in revenue?

• Will the initial beachhead market serve as a springboard to the larger market or as quicksand that hinders progress?

• What marketing plan will bring in $100 million in revenue? Is the market diffuse and will cost millions of dollars in advertising, or is it one, focused market that can be tackled with a team of salespeople?

• Will the business be able to bridge the gap from a small but fervent set of early adopters to a larger user base and avoid lock-in with their current solution?

• Will the team be able to manage a $100 million company with hundreds of people, or will hypergrowth force the organization to collapse into chaos?

• Once the company starts stealing market share from the industry giants, how will it deter copycats?

The requirement to reach $100M may be onerous, but it provides a context for difficult decisions: What should the product be? Where should we concentrate? who should we hire? Every strategic choice must consider how to reach $100M in 5 years.

Focusing on $100M streamlines investor pitches. Instead of explaining everything, focus on how you'll attain $100M.

As an investor, I know I'll lose my money if the startup doesn't reach this milestone, so the revenue prediction is the first thing I look at in a pitch deck.

Reaching the $100M goal needs to be the first thing the entrepreneur thinks about when putting together the business plan, the central story of the pitch, and the criteria for every important decision the company makes.

Many people find the internet's various business models bewildering.

This article summarizes 31 startup e-books.

1. Using the freemium business model (free plus premium),

The freemium business model offers basic software, games, or services for free and charges for enhancements.

Examples include Slack, iCloud, and Google Drive

Provide a rudimentary, free version of your product or service to users.

Google Drive and Dropbox offer 15GB and 2GB of free space but charge for more.

Freemium business model details (Click here)

2. The Business Model of Subscription

Subscription business models sell a product or service for recurring monthly or yearly revenue.

Examples: Tinder, Netflix, Shopify, etc

It's the next step to Freemium if a customer wants to pay monthly for premium features.

Subscription Business Model (Click here)

3. A market-based business strategy

It's an e-commerce site or app where third-party sellers sell products or services.

Examples are Amazon and Fiverr.

• On Amazon's marketplace, a third-party vendor sells a product.

• Freelancers on Fiverr offer specialized skills like graphic design.

Marketplace's business concept is explained.

4. Business plans using aggregates

In the aggregator business model, the service is branded.

Uber, Airbnb, and other examples

Marketplace and Aggregator business models differ.

Amazon and Fiverr link merchants and customers and take a 10-20% revenue split.

Uber and Airbnb-style aggregator Join these businesses and provide their products.

5. The pay-as-you-go concept of business

This is a consumption-based pricing system. Cloud companies use it.

Example: Amazon Web Service and Google Cloud Platform (GCP) (AWS)

AWS, an Amazon subsidiary, offers over 200 pay-as-you-go cloud services.

“In short, the more you use the more you pay”

When it's difficult to divide clients into pricing levels, pay-as-you is employed.

6. The business model known as fee-for-service (FFS)

FFS charges fixed and variable fees for each successful payment.

For instance, PayU, Paypal, and Stripe

Stripe charges 2.9% + 30 per payment.

These firms offer a payment gateway to take consumer payments and deposit them to a business account.

Fintech business model

7. EdTech business strategy

In edtech, you generate money by selling material or teaching as a service.

edtech business models

Freemium When course content is free but certification isn't, e.g. Coursera

FREE TRIAL SkillShare offers free trials followed by monthly or annual subscriptions.

Self-serving marketplace approach where you pick what to learn.

Ad-revenue model The company makes money by showing adverts to its huge user base.

Lock-in business strategy

Lock in prevents customers from switching to a competitor's brand or offering.

It uses switching costs or effort to transmit (soft lock-in), improved brand experience, or incentives.

Apple, SAP, and other examples

Apple offers an iPhone and then locks you in with extra hardware (Watch, Airpod) and platform services (Apple Store, Apple Music, cloud, etc.).

9. Business Model for API Licensing

APIs let third-party apps communicate with your service.

Uber and Airbnb use Google Maps APIs for app navigation.

Examples are Google Map APIs (Map), Sendgrid (Email), and Twilio (SMS).

Business models for APIs

1. Free: The simplest API-driven business model that enables unrestricted API access for app developers. Google Translate and Facebook are two examples.

2. Developer Pays: Under this arrangement, service providers such as AWS, Twilio, Github, Stripe, and others must be paid by application developers.

3. The developer receives payment: These are the compensated content producers or developers who distribute the APIs utilizing their work. For example, Amazon affiliate programs

10. Open-source enterprise

Open-source software can be inspected, modified, and improved by anybody.

For instance, use Firefox, Java, or Android.

Google paid Mozilla $435,702 million to be their primary search engine in 2018.

Open-source software profits in six ways.

1. Paid assistance The Project Manager can charge for customization because he is quite knowledgeable about the codebase.

2. A full database solution is available as a Software as a Service (MongoDB Atlas), but there is a fee for the monitoring tool.

3. Open-core design R studio is a better GUI substitute for open-source applications.

4. sponsors of GitHub Sponsorships benefit the developers in full.

5. demands for paid features Earn Money By Developing Open Source Add-Ons for Current Products

Open-source business model

11. The business model for data

If the software or algorithm collects client data to improve or monetize the system.

Open AI GPT3 gets smarter with use.

Foursquare allows users to exchange check-in locations.

Later, they compiled large datasets to enable retailers like Starbucks launch new outlets.

12. Business Model Using Blockchain

Blockchain is a distributed ledger technology that allows firms to deploy smart contracts without a central authority.

Examples include Alchemy, Solana, and Ethereum.

Business models using blockchain

1. Economy of tokens or utility When a business uses a token business model, it issues some kind of token as one of the ways to compensate token holders or miners. For instance, Solana and Ethereum

2. Bitcoin Cash P2P Business Model Peer-to-peer (P2P) blockchain technology permits direct communication between end users. as in IPFS

3. Enterprise Blockchain as a Service (Baas) BaaS focuses on offering ecosystem services similar to those offered by Amazon (AWS) and Microsoft (Azure) in the web 3 sector. Example: Ethereum Blockchain as a Service with Bitcoin (EBaaS).

4. Blockchain-Based Aggregators With AWS for blockchain, you can use that service by making an API call to your preferred blockchain. As an illustration, Alchemy offers nodes for many blockchains.

13. The free-enterprise model

In the freeterprise business model, free professional accounts are led into the funnel by the free product and later become B2B/enterprise accounts.

For instance, Slack and Zoom

Freeterprise companies flourish through collaboration.

Start with a free professional account to build an enterprise.

14. Business plan for razor blades

It's employed in hardware where one piece is sold at a loss and profits are made through refills or add-ons.

Gillet razor & blades, coffee machine & beans, HP printer & cartridge, etc.

Sony sells the Playstation console at a loss but makes up for it by selling games and charging for online services.

Advantages of the Razor-Razorblade Method

1. lowers the risk a customer will try a product. enables buyers to test the goods and services without having to pay a high initial investment.

2. The product's ongoing revenue stream has the potential to generate sales that much outweigh the original investments.

Razor blade business model

15. The business model of direct-to-consumer (D2C)

In D2C, the company sells directly to the end consumer through its website using a third-party logistic partner.

Examples include GymShark and Kylie Cosmetics.

D2C brands can only expand via websites, marketplaces (Amazon, eBay), etc.

D2C benefits

• Lower reliance on middlemen = greater profitability

• You now have access to more precise demographic and geographic customer data.

• Additional space for product testing

• Increased customisation throughout your entire product line-Inventory Less

16. Business model: White Label vs. Private Label

Private label/White label products are made by a contract or third-party manufacturer.

Most amazon electronics are made in china and white-labeled.

Amazon supplements and electronics.

Contract manufacturers handle everything after brands select product quantities on design labels.

17. The franchise model

The franchisee uses the franchisor's trademark, branding, and business strategy (company).

For instance, KFC, Domino's, etc.

Subway, Domino, Burger King, etc. use this business strategy.

Many people pick a franchise because opening a restaurant is risky.

18. Ad-based business model

Social media and search engine giants exploit search and interest data to deliver adverts.

Google, Meta, TikTok, and Snapchat are some examples.

Users don't pay for the service or product given, e.g. Google users don't pay for searches.

In exchange, they collected data and hyper-personalized adverts to maximize revenue.

19. Business plan for octopuses

Each business unit functions separately but is connected to the main body.

Instance: Oyo

OYO is Asia's Airbnb, operating hotels, co-working, co-living, and vacation houses.

20, Transactional business model, number

Sales to customers produce revenue.

E-commerce sites and online purchases employ SSL.

Goli is an ex-GymShark.

21. The peer-to-peer (P2P) business model

In P2P, two people buy and sell goods and services without a third party or platform.

Consider OLX.

22. P2P lending as a manner of operation

In P2P lending, one private individual (P2P Lender) lends/invests or borrows money from another (P2P Borrower).

Instance: Kabbage

Social lending lets people lend and borrow money directly from each other without an intermediary financial institution.

23. A business model for brokers

Brokerages charge a commission or fee for their services.

Examples include eBay, Coinbase, and Robinhood.

Brokerage businesses are common in Real estate, finance, and online and operate on this model.

1. Buy/sell similar models Examples include financial brokers, insurance brokers, and others who match purchase and sell transactions and charge a commission.

2. These brokers charge an advertiser a fee based on the date, place, size, or type of an advertisement. This is known as the classified-advertiser model. For instance, Craiglist

24. Drop shipping as an industry

Dropshipping allows stores to sell things without holding physical inventories.

When a customer orders, use a third-party supplier and logistic partners.

Retailer product portfolio and customer experience Fulfiller The consumer places the order.

Dropshipping advantages

• Less money is needed (Low overhead-No Inventory or warehousing)

• Simple to start (costs under $100)

• flexible work environment

• New product testing is simpler

25. Business Model for Space as a Service

It's centered on a shared economy that lets millennials live or work in communal areas without ownership or lease.

Consider WeWork and Airbnb.

WeWork helps businesses with real estate, legal compliance, maintenance, and repair.

26. The business model for third-party logistics (3PL)

In 3PL, a business outsources product delivery, warehousing, and fulfillment to an external logistics company.

Examples include Ship Bob, Amazon Fulfillment, and more.

3PL partners warehouse, fulfill, and return inbound and outbound items for a charge.

Inbound logistics involves bringing products from suppliers to your warehouse.

Outbound logistics refers to a company's production line, warehouse, and customer.

27. The last-mile delivery paradigm as a commercial strategy

Last-mile delivery is the collection of supply chain actions that reach the end client.

Examples include Rappi, Gojek, and Postmates.

Last-mile is tied to on-demand and has a nighttime peak.

28. The use of affiliate marketing

Affiliate marketing involves promoting other companies' products and charging commissions.

Examples include Hubspot, Amazon, and Skillshare.

Your favorite youtube channel probably uses these short amazon links to get 5% of sales.

Affiliate marketing's benefits

• In exchange for a success fee or commission, it enables numerous independent marketers to promote on its behalf.

• Ensure system transparency by giving the influencers a specific tracking link and an online dashboard to view their profits.

• Learn about the newest bargains and have access to promotional materials.

29. The business model for virtual goods

This is an in-app purchase for an intangible product.

Examples include PubG, Roblox, Candy Crush, etc.

Consumables are like gaming cash that runs out. Non-consumable products provide a permanent advantage without repeated purchases.

30. Business Models for Cloud Kitchens

Ghost, Dark, Black Box, etc.

Delivery-only restaurant.

These restaurants don't provide dine-in, only delivery.

For instance, NextBite and Faasos

31. Crowdsourcing as a Business Model

Crowdsourcing = Using the crowd as a platform's source.

In crowdsourcing, you get support from people around the world without hiring them.

Crowdsourcing sites

1. Open-Source Software gives access to the software's source code so that developers can edit or enhance it. Examples include Firefox browsers and Linux operating systems.

2. Crowdfunding The oculus headgear would be an example of crowdfunding in essence, with no expectations.

Content gurus' top time-saving hacks.

I'm a content strategist, writer, and graphic designer. Time is more valuable than money.

Money is always available. Even if you're poor. Ways exist.

Time is passing, and one day we'll run out.

Sorry to be morbid.

In today's digital age, you need to optimize how you create content for your organization. Here are six content creation hacks.

1. Use templates

Use templates to streamline your work whether generating video, images, or documents.

Setup can take hours. Using a free resource like Canva, you can create templates for any type of material.

This will save you hours each month.

2. Make a content calendar

You post without a plan? A content calendar solves 50% of these problems.

You can prepare, organize, and plan your material ahead of time so you're not scrambling when you remember, "Shit, it's Mother's Day!"

3. Content Batching

Batching content means creating a lot in one session. This is helpful for video content that requires a lot of setup time.

Batching monthly content saves hours. Time is a valuable resource.

When working on one type of task, it's easy to get into a flow state. This saves time.

4. Write Caption

On social media, we generally choose the image first and then the caption. Writing captions first sometimes work better, though.

Writing the captions first can allow you more creative flexibility and be easier if you're not excellent with language.

Say you want to tell your followers something interesting.

Writing a caption first is easier than choosing an image and then writing a caption to match.

Not everything works. You may have already-created content that needs captioning. When you don't know what to share, think of a concept, write the description, and then produce a video or graphic.

Cats can be skinned in several ways..

5. Repurpose

Reuse content when possible. You don't always require new stuff. In fact, you’re pretty stupid if you do #SorryNotSorry.

Repurpose old content. All those blog entries, videos, and unfinished content on your desk or hard drive.

This blog post can be turned into a social media infographic. Canva's motion graphic function can animate it. I can record a YouTube video regarding this issue for a podcast. I can make a post on each point in this blog post and turn it into an eBook or paid course.

And it doesn’t stop there.

My point is, to think outside the box and really dig deep into ways you can leverage the content you’ve already created.

6. Schedule Them

If you're still manually posting content, get help. When you batch your content, schedule it ahead of time.

Some scheduling apps are free or cheap. No excuses.

Don't publish and ghost.

Scheduling saves time by preventing you from doing it manually. But if you never engage with your audience, the algorithm won't reward your material.

Be online and engage your audience.

Content Machine

Use these six content creation hacks. They help you succeed and save time.

My kids redesigned the internet because it lacks inventiveness.

Internet today is bland. Everything is generic: fonts, layouts, pages, and visual language. Microtypography is messy.

Web design today seems dictated by technical and ideological constraints rather than creativity and ideas. Text and graphics are in containers on every page. All design is assumed.

Ironically, web technologies can design a lot. We can execute most designs. We make shocking, evocative websites. Experimental typography, generating graphics, and interactive experiences are possible.

Even designer websites use containers in containers. Dribbble and Behance, the two most popular creative websites, are boring. Lead image.

How did this happen?

Several reasons. WordPress and other blogging platforms use templates. These frameworks build web pages by combining graphics, headlines, body content, and videos. Not designs, templates. These rules combine related data types. These platforms don't let users customize pages beyond the template. You filled the template.

Templates are content-neutral. Thus, the issue.

Form should reflect and shape content, which is a design principle. Separating them produces content containers. Templates have no design value.

One of the fundamental principles of design is a deep and meaningful connection between form and content.

Web design lacks imagination for many reasons. Most are pragmatic and economic. Page design takes time. Large websites lack the resources to create a page from scratch due to the speed of internet news and the frequency of new items. HTML, JavaScript, and CSS continue to challenge web designers. Web design can't match desktop publishing's straightforward operations.

Designers may also be lazy. Mobile-first, generic, framework-driven development tends to ignore web page visual and contextual integrity.

How can we overcome this? How might expressive and avant-garde websites look today?

Rediscovering the past helps design the future.

'90s-era web design

At the University of the Arts Bremen's research and development group, I created my first website 23 years ago. Web design was trendy. Young web. Pages inspired me.

We struggled with HTML in the mid-1990s. Arial, Times, and Verdana were the only web-safe fonts. Anything exciting required table layouts, monospaced fonts, or GIFs. HTML was originally content-driven, thus we had to work against it to create a page.

Experimental typography was booming. Designers challenged the established quo from Jan Tschichold's Die Neue Typographie in the twenties to April Greiman's computer-driven layouts in the eighties. By the mid-1990s, an uncommon confluence of technological and cultural breakthroughs enabled radical graphic design. Irma Boom, David Carson, Paula Scher, Neville Brody, and others showed it.

Early web pages were dull compared to graphic design's aesthetic explosion. The Web Design Museum shows this.

Nobody knew how to conduct browser-based graphic design. Web page design was undefined. No standards. No CMS (nearly), CSS, JS, video, animation.

Now is as good a time as any to challenge the internet’s visual conformity.

In 2018, everything is browser-based. Massive layouts to micro-typography, animation, and video. How do we use these great possibilities? Containerized containers. JavaScript-contaminated mobile-first pages. Visually uniform templates. Web design 23 years later would disappoint my younger self.

Our imagination, not technology, restricts web design. We're too conformist to aesthetics, economics, and expectations.

Crisis generates opportunity. Challenge online visual conformity now. I'm too old and bourgeois to develop a radical, experimental, and cutting-edge website. I can ask my students.

I taught web design at the Potsdam Interface Design Programme in 2017. Each team has to redesign a website. Create expressive, inventive visual experiences on the browser. Create with contemporary web technologies. Avoid usability, readability, and flexibility concerns. Act. Ignore Erwartungskonformität.

The class outcome pleased me. This overview page shows all results. Four diverse projects address the challenge.

1. ZKM by Frederic Haase and Jonas Köpfer

Frederic and Jonas began their experiments on the ZKM website. The ZKM is Germany's leading media art exhibition location, but its website remains conventional. It's useful but not avant-garde like the shows' art.

Frederic and Jonas designed the ZKM site's concept, aesthetic language, and technical configuration to reflect the museum's progressive approach. A generative design engine generates new layouts for each page load.

ZKM redesign.

2. Streem by Daria Thies, Bela Kurek, and Lucas Vogel

Street art magazine Streem. It promotes new artists and societal topics. Streem includes artwork, painting, photography, design, writing, and journalism. Daria, Bela, and Lucas used these influences to develop a conceptual metropolis. They designed four neighborhoods to reflect magazine sections for their prototype. For a legible city, they use powerful illustrative styles and spatial typography.

Streem makeover.

3. Medium by Amelie Kirchmeyer and Fabian Schultz

Amelie and Fabian structured. Instead of developing a form for a tale, they dissolved a web page into semantic, syntactical, and statistical aspects. HTML's flexibility was their goal. They broke Medium posts into experimental typographic space.

Medium revamp.

4. Hacker News by Fabian Dinklage and Florian Zia

Florian and Fabian made Hacker News interactive. The social networking site aggregates computer science and IT news. Its voting and debate features are extensive despite its simple style. Fabian and Florian transformed the structure into a typographic timeline and network area. News and comments sequence and connect the visuals. To read Hacker News, they connected their design to the API. Hacker News makeover.

Communication is not legibility, said Carson. Apply this to web design today. Modern websites must be legible, usable, responsive, and accessible. They shouldn't limit its visual palette. Visual and human-centered design are not stereotypes.

I want radical, generative, evocative, insightful, adequate, content-specific, and intelligent site design. I want to rediscover web design experimentation. More surprises please. I hope the web will appear different in 23 years.

Update: this essay has sparked a lively discussion! I wrote a brief response to the debate's most common points: Creativity vs. Usability