Billion dollar maybe?
Tuesday 8 May 2012 4:00
As one report charts the rise of big firms with no HQ, another predicts the world’s first US$1bn business with virtually zero employees.
They say what happens across the pond will invariably happen here – albeit eventually, especially in terms of popular culture, lifestyles and, to the nation’s detriment, criminal activity.
Business trends also navigate their way across the Atlantic, like the penchant for the type of working environments trail-blazed by Google and the rise of remote working.
But the latest talked-up trend seems unlikely to happen here for a very long time, given the lack of home-grown business candidates that look ready to emulate anything like the growth of Facebook and co.
According to a new report, the recent acquisition of Instagram by Facebook will pave the way for a rise in billion dollar businesses with barely any employees.
Despite venture capitalists valuing the photo sharing firm at less than half the US$1bn paid by Facebook, the deal went through with the sound of some analysts heralding the next dotcom bubble, while others cried 'over-valued and over-hyped'.
But Magister Advisors, which advises the technology industry on M&A activity, believes the deal confirms a new breed of super-efficient technology companies is emerging.
It says they are capitalising on near-free distribution channels that enable entrepreneurs to find significant markets for their innovations with minimal capital investment and virtually no headcount.
These new conditions translate into minimal risk, unparalleled upside and potentially accelerated revenue generation for entrepreneurs.
Recent acquisitions and IPO valuations point to this trend, with the sale of Instagram, a business with 13 staff, for US$1bn translating into a value per employee of US$77m – or £47.5m.
Facebook’s IPO filing implies a value per employee for its own business of US$33m (£20.3m). In comparison, Microsoft, has a value per employee of US$3m (£1.85m).
Magister Advisors’ managing director Victor Basta says: “The potential for this new breed of super-efficient companies to accelerate revenue generation is unprecedented. Microsoft went from zero to US$1m revenues in 3 years.
“Facebook, by comparison, went from zero to US$150m revenues in three years, representing a 40-fold acceleration in real terms. This will only get easier and faster for the right idea.”
Basta adds: “The opportunity to create huge value – and create it quickly – has never been greater, with minimal operational risk. The arrival of the $1bn one-employee business is surely imminent."
Microsoft and Apple, says Basta, were both built on the entrepreneurial genius of a handful of individuals, but the difference was that they needed to build a whole infrastructure to grow.
The parallels between the early days of Microsoft and Apple and today’s new generation of white hot technology companies are compelling.
“What today’s business models make clear is the huge amount of value that resides in individual employees in successful technology companies, something that hasn’t been visible before,” Basta says.
“Today, the world has changed completely. Businesses no longer need 500 or more employees to manage and implement sales, marketing and distribution channels. We have established free distribution channels, download business models, lots of free or near-free open source software code and the growth of user-connection marketing.
“All of these factors create the perfect opportunity for value creation in a very short period of time with minimal capital outlay and therefore very low risk. A handful of Instagram people turned 551 days of effort into a US$1bn business. Twitter was developed literally over a weekend, and coded and launched within 4 months.”
|
Company |
Approximate value per employee |
Approximate number of employees |
|
|
US$77,000,000 |
13 |
|
|
US$33,000,000 |
3,000 |
|
|
US$11,000,000 |
900 |
|
Apple |
US$10,000,000 |
60,000 |
|
Microsoft |
US$3,000,000 |
92,000 |
The Magister report claims that the dotcom bubble enabled businesses to achieve stratospheric valuations based on their perceived future potential.
The game is now very different, however, since innovators can get their creations into the hands of hundreds of millions of individuals in a very short period of time and at very low cost - and in the process start to build real value very quickly.
Back in 1999, businesses were being valued per unique user but perhaps, as Magister argues, now they should be considered by the value per unique employee.
Skeptics may argue, though, that the whole Instagram deal will prove nothing more than an expensive mistake rather than a sign of something bigger. Time will tell which side proves closer to the truth.
