I’m James Knight, Founder & Chief Nerd at No Nerds No Problem. I help founders iterate faster with a team of nearshore Nerds. I’ve spent the last ten years obsessing about how to help non-technical founders build and launch their startups and MVPs. I’m a Bona Fide Nerd myself with an undergraduate degree in Mathematics.
Since leaving Google in 2015 and starting my startup consulting agency, I’ve grown this company to 30+ nerds across six different countries, been featured in Bloomberg, and have helped more than 35 companies launch their MVPs and raise a combined $700M in fundraising using our Nerdstorm process. I’m here to help you do the same.
“Independent software {firms} such as Mr. Knights {No Nerds} represent an elite echelon of the so-called Gig Economy.” Bloomberg
In this article, I will show you how to lay the groundwork to build your million-dollar startup and how we did this for multiple clients. Be sure to read (or skip) to the end to see how we helped an early-stage startup with no money raise six figures in funding without writing a single line of code.
Table of Contents
- What Makes a Million-Dollar Startup?
- How to Set Early-Stage Valuations
- How to Calculate a Company’s Valuation
- How To Calculate Metrics Correctly
- How To Reach Million-Dollar Metrics
- How To Build a Million-Dollar Team
- How to Think Like a Million-Dollar Founder
- How To Prevent Your Startup From Failing
- The Takeaway: Unlocking the Keys to Success
What Makes a Million-Dollar Startup?
In the world of startups, we often hear the daunting statistic: a staggering 90% of startups ultimately fail. But let’s change our perspective for a moment. What if we turn our attention to the 10% that defy the odds, those that flourish and succeed? What can we learn from them? Let’s explore the key ingredients that set these triumphant startups apart.
1. The Market Fit Maestro: Catering to Customer Needs
Success begins with an unwavering focus on understanding customer needs and solving their problems like no one else can. These startups actively listen to feedback, readily adapt their offerings to meet market demands, and consistently strive to stay ahead of the curve.
2. The Visionary Vanguard: Cultivating a Cohesive Team
Behind every successful startup is a leader who inspires, motivates, and galvanizes the team. These visionaries foster a thriving culture, champion collaboration, and boldly embrace calculated risks to propel their startup toward its ultimate goals.
3. The Resilient Trailblazer: Rising Above Adversity
The startup journey is riddled with challenges – securing funding, outpacing competition, and attracting top talent. But the leaders of flourishing startups refuse to let setbacks define them. Instead, they learn, adapt, and pursue success, always staying the course.
How To Set Early-Stage Valuations
A startup founder must conduct a thorough valuation process to attract investors and make informed decisions. This process determines the required capital and quantifies the startup’s worth. Calculating startup valuation is crucial for fundraising, as it involves investors acquiring equity in the company.
Calculating Expected Value
Unlike established companies, early-stage startups move too quickly for traditional valuation models—like those based on Discounted Future Cashflows or EBITDA multiples. Instead, investors base valuations on what they expect the company’s future value to be based on its current state.
Expected Value (EV) calculations are an elementary financial concept, computed by breaking down an investment into its possible future outcomes, assigning each of those outcomes a probability, multiplying that probability times the value of that outcome, then adding those values up to reach the total expected value:
EV = Sum (Outcome Probability * Outcome Value)
Calculating these individual outcomes and probabilities is straightforward for assets with extensive market histories. But with startups, we only know the value of two outcomes:
(A) Possible Success: Total Addressable Market (TAM) – X% of $YB market
(B) Failure: $0
Many first-time founders make the mistake of basing their personal valuation expectations on Outcome A. While understanding a startup’s TAM (Total Addressable Market) is important, investors know that around 90% of startups fail.
And even amongst those that don’t, the vast majority of their portfolio companies will end up somewhere between Outcomes A and B. For an investor to accurately assess a company’s Expected Value, they need to understand these intermediate outcomes.
Estimating the Outcomes
Because they can’t possibly know the probability of every possible outcome between total market capture and failure, investors rely on their personal expectations of a company’s success. They base these expectations on three components:
- Quantitative: Traction metrics, i.e., is the startup currently growing?
- Temporal: Time, i.e., how fast is that growth happening?
- Qualitative: Belief, i.e., Does the investor believe the company can continue to grow?
How To Calculate a Company’s Valuation
These three components can be used to calculate a company’s valuation:
Valuation = (Qualitative Factor * Quantitative Factor) / time
Where our Quantitative Factor (Fqt) is some form of traction metrics, t is the amount of time it took to achieve those metrics, and our Qualitative Factor (Fql) is an arbitrary value chosen by the investor based on their belief in the company, market, and founding team.
Let’s look at it another way:
V = Metrics * Multiple
Where Multiple is a combination of the Qualitative Factor (Fql) and Time (t).
Revenue v. Pre-revenue Valuations
The metrics used in the above calculation depend primarily on whether or not the startup currently generates revenue. Those that are, use their annual revenue (AR), while those that don’t use Monthly Active Users (MAUs).
Revenue Valuations
Revenue-generating startups are valued based on their speed in achieving current annual revenue. The valuation multiple, typically ranging from 5-15x, is determined by investors, but industry trends indicate specific benchmarks.
Startups reaching revenue within 12-18 months can expect an average multiple of 10x, while faster achievers may see multiples of 15x or higher, mainly if the revenue is recurring.
Pre-revenue Valuations
Pre-revenue startup valuation depends on the investor’s estimation of Customer Lifetime Value (LTV), which considers metrics like Customer Acquisition Costs (CACs), Session Length, Churn Rate, and demographics.
These metrics significantly impact LTV, leading to a wide range of multiples for pre-revenue startups. Typically, MAU multiples range from $75-150 per user, with an industry average of $100.
Assuming we can earn the average industry multiple for our startup’s valuation (i.e., we can reach our growth targets within our first 12-18 months). What metrics justify a $1M valuation?
How To Calculate Metrics Correctly
Accurate metric calculation is crucial for startups, providing a clear view of performance, growth, and overall business health. It enables informed decision-making, identifies strengths and weaknesses, and supports funding and partnerships.
If you calculate metrics right, you can open your business to valuable insights, increased success chances, and confident navigation of the competitive landscape. Let’s get this right.
Use our Free Metric Model
To help you get started, we built a simple model of the below calculations here. Feel free to make a copy of the spreadsheet and change the variables at the top to see how they affect your target valuation.
Revenue-based Metrics
For revenue-generating startups with a 10X multiple, we need to show $100K in annualized revenue. Broken down monthly, that’s just over $8.3K per month.
V = $8.3K Monthly Revenue * 12 months * 10x multiple = $1,000,000
Depending on your ticket price (value per sale) that means we need to reach the following sales numbers to justify a $1M valuation:
- 834 monthly customers at $10 each.
- OR 84 monthly customers at $100 each.
- OR 9 monthly customers at $1K each.
Non-revenue Metrics
The calculation for pre-revenue startups with an expected LTV of $100 is more straightforward: we need to show 10,000 Monthly Active Users (MAUs) to hit a valuation of $1M.
V = 10,000 MAUs * $100 LTV Multiple = $1,000,000
How To Reach Million-Dollar Metrics
If you want to build, launch, and grow your company to $1M and beyond, a “great idea” isn’t enough. It takes a capable founding team months to turn their vision into an actual product, take it to customers, and reach the traction goals necessary to earn those valuations.
Reaching those goals in 6 months? That takes a rockstar founder or founding team leading a killer execution team. Do you have what it takes to hit those metrics in that timeframe? Our clients have done that and then some.
Here are two examples (names removed at client request):
Example 1
Social networking startup – 10K users in ~1 month
Example 2
D2C startup – $35K in sales in first 90 days ($11.6K monthly):
Both of these companies were worth $1M+ within three months of launching their product. OK, so what type of team got them there? How do I create such a team? Read on.
Ready to launch?
How To Build a Million-Dollar Team
We know what metrics we must show to reach a million-dollar valuation. We’ve seen that other companies have done it. OK, but what does it take for a startup to do the same?
Y Combinator, the most successful Startup Accelerator of all time, often says that startups should spend their time “writing code and talking to customers.”
Put another way; startups have two jobs: Building and Selling. That means that every successful startup has two distinct sides:
(1) The Business
Comprised of business-minded visionaries who identify opportunities, conceptualize products, and successfully sell them to customers.
(2) The Nerds
Designers & developers who are capable of taking the Business’s vision and implementing it.
What if you had a founder who could assemble, vet, and manage a team of world-class nerds without giving away 50% of equity, wasting hundreds of thousands of dollars on expensive freelancers, or wasting six months of your time sourcing work from India?
But what kind of person does it take to lead a Million Dollar Business? A million-dollar founder.
How To Think Like a Million-Dollar Founder
Even with a team of (Math) Olympian-tier Nerds and a perfect team executing flawlessly, a startup is only as valuable as its vision. And its vision is only as valuable as its founding team.
So what kind of non-technical founder can hit a $ 1M valuation in six months?
Here’s how you do it:
- You have to have an idea for an ambitious startup. Small ideas don’t get big valuations.
- You have to be willing to invest time and money into making that idea a reality. We can show you how to be efficient with those costs, but development isn’t free.
- You must be willing to put in the work: even with others executing your vision, reaching Million Dollar Metrics is a full-time job.
- You must be willing to take your product to market every few weeks, even if it’s not “finished” or “perfect.”
- You have to be open to criticism and be able to take harsh feedback from your team and customers.
- You have to be willing to sell, sell, sell.
What type of founders can’t hit these metrics?
- Founders who aren’t willing to get their hands dirty. Startups are hard work.
- Founders who aren’t willing to take risks. You win and lose at the table you play at.
- Founders who only hire technical talent based on how cheap they are. You won’t even reach LAUNCH in 6 months with budget providers.
Why do founders fail?
Non-technical founders don’t fail because their ideas aren’t ambitious enough, because they don’t know how to run a business, talk to customers, or sell their products.
They fail because they over-invest in bringing their MVPs to market, work with partners that can’t deliver that MVP effectively and efficiently, and reach launch with no traction, money to improve their product, and no way to raise more funds.
How To Prevent Your Startup From Failing
How do we keep our clients away from the 90% fail club? We use a one-week roadmapping workshop called the Nerdstorm. We’ve tailored and fine-tuned this process to turn ideas into something tangible. More than just a toy—something real that you can take to customers and sell and fundraise with.
Your new product shouldn’t take six months and $100K+ to bring to market. This is why we developed the Nerdstorm as a 5-day product, design, and development sprint built to get The Next Big Thing™ out of your head and into the hands of your customers.
We have used this approach repeatedly to take concepts to clickable prototypes in a week. Instead of having calls about calls, you should be raising capital, closing your first customers, and testing new business outcomes.
If you already have the capabilities to do this, great, as I have yet to see a faster, more affordable approach to kickstarting development and getting customer feedback in days, not months. If not, check out these success stories and see if we can help.
Nerdstorm Success Stories:
- How BlueVerse built & launched a $10K prototype in just 5 days—and raised a $100K+ pre-seed round in the process.
- How Limber Health built the future of Physical Therapy in 3 months—securing new Medicare billing codes and raising $11M in funding along the way.
- How Wellness 4 Humanity launched the first national COVID vending machines and became a national media sensation—in just 12 weeks.
Ready to launch?
The Takeaway: Unlocking the Keys to Success
While I self-promoted in this article, that is not my overall goal. I am passionate about helping early-stage startups reach their potential and avoid the dreaded 90% club. I don’t just ask my team of Nerds to build a product and disappear; quite the opposite. Our work is usually just getting started post-launch.
The world of startups is teeming with ambitious dreamers and relentless doers who dare to shake things up. Success, however, is reserved for those who can adapt to a perpetually changing landscape while remaining steadfast in their core values and vision.
Unleash your potential by learning from the elite 10% who demonstrate that, with determination, adaptability, and passion, nothing is impossible. Let’s ignite a new revolution that propels even more startups into the exclusive 10% club.
What do you think it takes for startups to beat the odds and thrive? Did I miss anything? Share your insights and experiences in the comments below.