Cue the bubble-bubble talk. Cue the Twitter-doesn't-have-a-business-model talk.
Please.
We estimate that Twitter is doing around $100 million in revenues through its emerging ad business, and selling access to its firehose.
"So freaking what?" we hear the naysayers say. "A $7 billion valuation on $100 million in revenues is insane!"
Really?
Look at it this way: in 2001, Google earned $7 million in profits on $86 million in revenue.
Anyone who had invested in Google at a $7 billion valuation in 2001 would have been called the world's biggest moron. (Especially considering the fact that an actual bubble had recently popped.) A 1000X profit multiple!
And anyone who had invested in Google at a $7 billion valuation in 2001 would also have tripled her money in three years, when Google went public in 2004 at a valuation above $20 billion. (And if she'd held on to her stake, made a 20X return over 7 years.)
Of course, not every company making $7 million in profits is worth billions. But every once in a while, a few of them are. And it's investors' job to invest in several of those that might look like the next Google, be mercilessly mocked by the armchair quarterbacks, and have enough winners out of the lot that they can laugh all the way to the bank.
Here's what Twitter has in common with 2001-era Google:
- A simple, beautiful product that users love and that's growing like wildfire
- A professional CEO and a visionary, involved co-founder.
- Twitter also has network effects that Google doesn't have, but these aren't as important as most people think.
But that's not the thing that makes Google and Twitter worth billions, as opposed to hundreds of millions.
The thing that makes you worth billions is a revenue-generating product with huge momentum.
It doesn't matter the absolute numbers of your revenue, whether it's $100 million or $10 billion or $10 million. What matters is the slope of the curve. Whether customers can't get enough of your product, as was the case with Google when they launched search advertising and couldn't believe just how many people were buying.
(The reason the absolute value of the numbers don't matter, by the way, is that the value of an asset is the net present value of its future cash flows. In an early stage business, growth rates are more important to estimate future cash flows.)
From 2001 to 2004, Google's revenue grew from $86 million to $1.5 billion. That's staggering.
Is Twitter going to achieve similarly stunning revenue (and profit) growth?
Nobody knows, but stranger things have happened.
If we had to guess, we'd say Twitter insiders, including Google board member John Doerr, see Twitter's revenue growth and it makes them think Twitter could grow revenue that fast.
We wouldn't be surprised if it did.
Don't Miss: The Next Twitter Trend (We Hope): #Twintros
(Editor’s note: Dharmesh Shah is a serial software entrepreneur and the founder and CTO of HubSpot, which provides marketing software for small businesses. This column originally appeared on his blog.)
I first met Derek Sivers (who most people know best as the founder of CD Baby) at the Business of Software conference, but I’d heard about him long before that.
In a world full of entrepreneurs who have done any number of incredible things, Derek has two accomplishments to his credit that are remarkable: He created a successful business, from scratch – then gave the business away to charity when he was done.
Derek recently spoke at the Business of Software conference. If you’ve got the time, you should go watch his presentation. It’s inspiring. Even if you don’t, you definitely should pick up his book.
Derek is the author of the simple, highly readable “Anything You Want”. It’s short, to the point and inspiring. Also, the book is published through “The Domino Project” by Seth Godin. Here are some of the most stirring ideas from that book to get you motivated:
1. Business is not about money. It’s about making dreams come true for others and for yourself.
2. When you make a company, you make a utopia. It’s where you design your perfect world.
3. Success comes from persistently improving and inventing, not from persistently promoting what’s not working.
4. A quick glance and common sense should tell you if the numbers will work. The rest are details.
5. “Revolution” is a term that people use only when you’re successful. Before that, you’re just a quirky person who does things differently.
6. When you’re on to something great, it won’t feel like revolution. It’ll feel like uncommon sense.
7. If you’re not saying “HELL YEAH!” about something, say “no”.
8. Start now. No funding needed.
9. After we grew to 50 employees, people started pitching me on how I needed an official employee review plan, sensitivity training, Terms and Conditions postings, and all this corporate crap. I got such joy out saying no to all of it.
10. In a perfect world, would your website be covered with advertising?
11. Resist the urge to punish everyone for one person’s mistake.
12. If you find even the smallest way to make people smile, they’ll remember you more for that smile than for all your other fancy business-model stuff.
13. Don’t try to impress an invisible jury of MBA professors. It’s OK to be casual.
14. No matter what business you’re in, it’s good to prepare for what would happen if business doubled.
15. In the end, it’s about what you want to be, not what you want to have.
16. When you sign up for a marathon, you don’t want a taxi to take you to the finish line.
17. There’s a big difference between being self-employed and being a business owner.
18. Never forget that you can make your role anything you want it to be.
19. Anything you hate to do, someone else loves it. Find that person and let them do it.
20. Why he gave his company away to charity: I get the pride of knowing I did something irreversibly smart before I could change my mind. Most of all, I get the constant, priceless reminder that I have enough.
21. Whatever you make, it’s your creation, so make it your personal dream come true.
So, what do you think? Are you working towards being happy? What’s your favorite idea from the list? Let us know in the comments below.
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