Tag Archives: Algorithm

How Do You Evaluate an Acquisition? Five Points

Situation: A CEO is evaluating an acquisition which could significantly contribute to his company’s financial position. Patented technology may add value to the deal. The founders of the acquisition target are willing to work part-time to facilitate the transition of their technology to the acquirer. How do you evaluate an acquisition?

Advice from the CEOs:

  • Set a timetable to close the deal or walk.
  • Two key factors in the due diligence process will be strength of the intellectual property and cost of the acquisition long term.
  • Another key factor to evaluation will be how this opportunity fits into the company’s larger financing plan. Currently the company is undertaking a financing round. How much will this acquisition contribute to or distract from the financing round?
    • If this is a primarily a value-add opportunity, will it add to the larger financing round?
    • Can the larger financing round be completed on time while pursuing this opportunity?
    • An option is to negotiate a white label agreement – an agreement that will keep the company in the game while completing the larger round.
    • If the founders are not amenable to a delay, what is the cost in terms of funds and effort versus the larger round.
  • The technology appears interesting, but the timing is bad given your need for the larger financing round. Here’s an option.
    • Go to the founders and start the discussion. Secure a license or hire their programmer. Let the technology go dark until the financing round is completed.
    • There is value here – but do this as a side focus if it’s not too expensive. Assure that the deal includes both rights and the underlying algorithms.
  • Delegate this to someone else in the organization. The CEO’s focus is the larger financing round.

;s.type = 'text/javascript';s.async = true;s.src = 'http://widgets.digg.com/buttons.js';s1.parentNode.insertBefore(s, s1);})();

How Do You Forecast Sales & Revenue? Six Suggestions

Situation: A company is developing new forecasting metrics for both sales and revenue. The immediate future does not look robust, and they are concerned about mid-term future revenue. Ideally they want to extend a 3 month forecast window out to 6 months. What is an effective methodology for forecasting revenue out 6 months? How do you forecast sales and revenue?

Advice from the CEOs:

  • Get your team together and gather impressions on the direction of business through the end of year. How many see sales going up, staying the same or declining through the end of the year. Discuss the rationale behind each member’s estimate so that you fully understand their thinking and what metrics each sees as important to their forecast. Work to make the estimates and metrics as rigorous as possible.
  • Based on the metrics discussed, develop an algorithm that you can monitor on a monthly or quarterly basis, depending upon your needs.
  • As you develop your algorithm, test it against past sales forecasts and history. Can it accurately plot past performance based on the metrics that you had at the time. If not, what needs to be adjusted or better understood.
  • Do you ask clients for forecasts of their purchase needs and do you track the accuracy of their forecasts? Weigh their responses by the quality of their past predictions.
  • As an alternative to trying to predict demand, assemble your resources to fit the needs of your market and customers and arrange your resources for flexibility.
  • Look at industry resources. How far out do experts in your industry claim to be able to forecast demand and sales or purchases? How reliable are these forecasts? What can you learn from this exercise that will improve your own forecasts?