Cost control @ Pre IPO - A Value Multiplier

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As Pre IPO Companies reach later stages of maturity, cost control is a massive value multiplier when the savings is allocated to directly growing revenue. Waiting until you get on the plane to get free coffee vs Starbucks alone can create hundreds of dollars of value based depending on the potential earnings multiplier that investors assign to your company.

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Cost control @ Pre IPO - A Value Multiplier

  1. 1. Cost Control @ Pre IPO A Value Multiplier As Pre IPO Companies reach later stages of maturity, cost control is a massive value multiplier when the savings is allocated to directly growing revenue $375 Bill Kohnen 2014
  2. 2. Overview • New start ups need to focus on developing disruptive solutions and getting the attention of early innovators as customers • As startups mature spend becomes a matter of survival as they look to reach a broader base of customers and introduce next generation products • Finally as a Pre IPO company starts to cross into mainstream markets spend control can fund activities that will create massive relative value based on earning multiples. Bill Kohnen 2014
  3. 3. Savings Creates Value Funding Value Creating Activities - Example • Every Dollar Saved Creates $50 to $75 Worth of Value • $1,000,000 Saved Creates $50M to $75M of Value Save $1M Hire 10 Sales People Generate $5M New Revenue X 10 X 15 Multiple $50,000,000 $75,000,000 $250 to $375 Value “Drink Free Coffee on the Plane and Create Value” Bill Kohnen 2014
  4. 4. How Much Value For You* • Assume 100 Employees • Each Dollar is Saved is .75 Value • After founders and investors take ½ value still employee gets .32 • A Million Dollars Savings is $75M value • Employee share is $325K *Shares are typically not distributed equally so actual value per individual depends on total shares . Also actual claims before employees dependent on specific financial structure Bill Kohnen 2014
  5. 5. What to do • Don’t get crazy with cost – you still need to function, keep people happy and pay for things that drive value • As prep for IPO you need better control in place anyway – put them in place and use them • If your spend is more than $10M think about getting a Professional Purchasing person. With savings they generate their cost will be ~ neutral but their contribution to value can be massive Bill Kohnen 2014

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