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Hindsight always has perfect vision and today we can observe that those courageous souls who backed Microsoft, Cisco, Sun, Apple, Echostar, Southwest Air, and the various startups in wireless that have long since been rolled up foresaw the high potential value of their investment. The real achievement is being able to articulate your vision long before the only view in sight is hindsight. How can you explain that this idea will soar in value without looking silly?

Many businesses that might be worthy of pursuit are of modest potential. They can be lifestyle ventures or businesses that are not so much entrepreneurial as they are jobs working for one or several customers. There would be little potential for growth and the resources might be overwhelmed by scale. In the end, however, if your idea is genuinely worthy, it will not be preposterous to catch sight of a valuation potential in the range of one billion dollars. Stop and think about the numbers for a second. This situation could exist if it is possible to foresee somewhere in the future an enterprise with $70 million in revenues, a net margin of 15%, and a PE of 100 (suggesting that the investing public adored your business).[2] Clearly, that is not asking the impossible—most high-technology firms enjoyed these parameters throughout the 1990s, and even today PEs in excess of 100 are not rare. This is being done today, even after the dot-com bubble burst.

[2] Simply calculated, a 15% margin on $70 million in revenues derives an earnings figure of $10,500,000. A public market PE of 100 suggests a valuation of $1,050,000,000. Bingo.


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