Ask one of your developers this question and watch his/her face change suddenly.
We all understand how to value stocks (using methods like the Buffet approach.) And we all understand the value of having smart developers on the team.
One of the challenges of working with them is communicating how they day to day work (i.e., coding.) leads to increasing the company’s valuation.
You can’t put a financial value to your codebase
You might, but not from the developer’s point of view.
Each new line of -bug-free- code adds more features to your product, making it more useful and appealing to your users, increasing your chances to attract more users, which will increase the company’s valuation.
It is a long journey from the developers typing all the way to the value of the stock. A journey hard to trace and hard to explain to developers.
Explain it in simple terms
You might notice that some developers, especially those with strong communication skills, will try to explain what they are doing to you in simple words, with analogies.
You can return the same favor when you explain your financials to them.
A culture of innovation will help (encouraging developers to try new technologies to improve your product).
The culture will eventually fail without numbers supporting that initiative.
I’ve seen some startups hang TVs on the walls with complicated KPI dashboards. I think that helps. However, you need to explain your numbers to your developers and leave them to determine the correlation with their work.
Measure your innovation culture
You can easily measure many things:
- Codebase: how many lines of code.
- Code commits: how many updates to the codebase.
- User demos: how many people got a product demo for the first time.
- User engagement: how many users are actually using your product.
Now -this is the hard part- given your current company valuation and the current trajectory: what you can learn from other players that walked your path before? What is an achievable target company valuation?
You need to come up with number that you can communicate.
Correlation doesn’t matter
How each new code commit impacts the company’s current valuation doesn’t matter.
What’s important is to create a story around which each commit counts toward achieving your company’s valuation goal.