In 2016, nutrition and wellness business JSHealth was valued at $500,000. By 2017, founder Jessica Sepel and her husband, the company’s chief executive Dean Steingold, had managed to boost this to more than $5 million.
Sepel started the project four years ago, sharing her insights as a nutritionist through her blog and a series of ebooks, before branching into printed recipe books too. Steingold, who at the time was running a software business he founded, saw potential to significantly expand the operation’s reach, and with it, its value.
“I said, ‘You have a great opportunity to help as many people as possible’,” he tells SmartCompany.
He came on board as chief executive and the pair started developing product ideas to expand the user base and the company’s reach.
Part of this was developing a program that would connect Sepel’s readers to her healthy eating insights in a more structured way. The company launched an eight-week plan to “quit diets forever”, where users pay $149 for two months worth of material.
The business is tight-lipped on the exact number of program users and revenue, but there are 230,000 users interacting with the JSHealth program across a variety of platforms, including 180,000 followers on Instagram. Steingold says within one year, the company’s valuation jumped from less than $1 million to somewhere between $5 and $10 million.
JSHealth isn’t done adding extra revenue opportunities and projects to help keep those hundreds of thousands of users in its community. Steingold says it has been critical for the company to have a number of value-adding projects in the pipeline at any one time, with the company recently launching a range of vitamins products to add to the mix.
The popular brand is also looking to grow by letting its customers shape upcoming products, tapping into feedback from users in real time.
“The pressure we feel is obviously a lot, because to keep innovating also requires more money. But really, that’s why Jess literally replies to every direct message she receives — the market tells us what they want,” Steingold says.
Having that dedicated community has also helped the business boost its potential when unexpected events come along. When competitor Sarah Wilson announced she was closing her I Quit Sugar business earlier this year, JSHealth welcomed its customers with open arms, without even having to try.
“We had no idea it was going to close, but our sales went up literally four times in that week,” Steingold says.
“They [I Quit Sugar users] all came to us. Everyone who was looking at I Quit Sugar found us very comparable.”
Steingold admits there are lots of ways to value a company, but in the quest to boost the value of JSHealth, the team’s top priority is showing a strong, long-term connection between users and the brand.
This approach is endorsed by co-founder of AirTree Ventures, Daniel Petre, who says given company valuations are very complex, the best thing early-stage businesses can do is show the passion of its customers.
“The one thing you are looking for is insanely happy customers that are increasing their use of the product. This trumps every other metric in early-stage companies,” he tells SmartCompany.
Many entrepreneurs dream of their companies becoming the next unicorn, but how do you go from being worth $500,000 to millions, especially at that early stage? Here are some things to keep in mind.
How are you being valued?
While you’ll regularly see business valuations spruiked when companies complete big capital raises or sales, it’s worth remembering the metrics that go into these figures vary.
Right Click Capital partner Benjamin Chong says he’s seen a range of metrics used in company valuations depending on the stage of the business.
“For very early-stage businesses, valuations are often based on founding team strength, market opportunity and business traction. As a business begins growing, particularly after it begins posting revenue, traction takes over as the key driver of valuation,” he says.
Once revenue is in the mix — for example, through a subscription model — investors and valuers will start looking at the relationship between your customers, revenue and retention.
“Valuations are [then] often based on the amount of monthly recurring revenue (MRR), month-on-month revenue growth, monthly churn and gross margin,” Chong says.
In this sense, it’s important to get a handle on what metrics are relevant for your business to show. But Chong warns there is no one thing a company can do to single-handedly boost how much they are “worth” by millions.
Instead, it’s worth thinking about how you can display your revenue, how long you keep customers and how much you walk away with at the end of each month.
“Founders who demonstrate strong monthly revenue growth, low churn and high gross margin will generally be viewed very favourably,” he says.
Show future potential
Petre says that as a business gets bigger, valuations will involve more of a focus on the lifetime value (LTV) to customer acquisition cost (CAV) ratio, which considers how much a customer is worth to your company overall, against how much it cost to get them on board in the first place.
Chong observes founders should be able to clearly demonstrate where their company will be in the next year or so to get the best response from venture capitalists in particular.
“At the early stage, I’ve found it helpful for founders to project their business’s key metrics in twelve or eighteen months time, when they may next need to raise capital,” he says.
This is something the founder of podiatry business Dimple discussed with SmartCompany earlier this year, when he shared how the business went from a $2.5 million valuation to a $13.4 million sale in three years.
As chief executive Damien James explained at the time, help from an external advisor was critical in making the business more efficient, but so was keeping detailed reports of company performance so that potential buyers could see exactly where the business was going.
“If you can show them [the buyer] they can go back and read the reports, it can show that you’re a really well-run company,” he says.
To Steingold’s mind, boosting the dollar valuation figure of JSHealth is important, but the team frames this more in terms of connecting with more users and boosting the company’s value to them.
“If we create great products, the users will buy it, they will tell people, then there’s user growth,” he says.
“We work our arses off to create amazing products.”