Factors Leading to Significant Potential Company Value

  1. IP (Intellectual, Human/Experiential, and Financial

a) Intellectual Property (IP): If a company can solve a problem that involves superior intellectual abilities (eg. AlphaZero can win a chess match), then it has significant potential value. IP also refers to legal protection. By holding patents, you have the option to protect a potential intellectual advantage in a market.

b) Human/Experiential Capital: If there’s a winning team capable of solving significant challenges, that increases the potential value of the company.

c) Financial Capital: If a company has significant resources, it can afford to build a significant presence or network capable of generating a significant advantage.

2. Product-Market Fit

My definition of product/market fit is the degree to which you can design a product/service that solves a problem so well that you have the ability to attract the following:

  • Significant revenue
  • Ability to increase pricing

3. Investing in Vertical Integration to Capture Significant Revenue in a Large Market

By investing in vertical integration and widespread cover, multiple products/services have become almost essential oligopolies to users including the following:

  • mobile carriers (eg. TMobile, AT&T, Verizon)
  • credit card issuers (eg. Visa, Mastercard, and AMEX)
  • Amazon (enabling one hour delivery by having significant vertical integration in some markets)
  • Overnight delivery service providers (eg. DHL, Fedex and UPS)

4. Network Effects/Widespread Adoption/Exclusive Content

  • Search (eg. Google)
  • Connections/Relationships (eg. Facebook and LinkedIn)-
  • Unique content (eg. Facebook/Instagram, Netflix, YouTube, and Twitch)

5. Good Strategy/Management/Governance 

Structuring with some of the following characteristics may increase the odds of success:

  • Creating a board of directors
  • Aligning incentives
  • Having a defined a process for decision-making and dispute resolution
  • Applying a meritocratic system of sharing ideas where the best ideas win
  • Reporting data systematically/regularly to key stakeholders to make decisions

By Leon Apel

Leon Apel works virtually with talented team members from North America, Europe and Asia on projects designed to improve life on earth.

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