Victus Spiritus


The wiggle in world economies plays a critical role in value estimation

10 Aug 2011

Harsh economic conditions instruct our sense of value

After reading Mark Suster's guest post on TechCrunch (here's the same post on his blog), I was reminded about the necessity for economic fluctuations. If economic activity only went one way (grew or contracted smoothly) there would be no secondary effects to observe. In other words, we would never know if values (or valuations for companies) were relatively or absolutely reasonable. The variation of economic conditions plays a critical role in the estimator that continual informs our sense of value.

When capital is in short supply due to market shifts or un(der)employment, what we value undergoes a dramatic shift. Thoughts of growth shift to that of survival. Do we have enough stocked away to weather catastrophic financial storms, or more importantly can we adjust to a new norm which is far less opulent than the life we once lived?

It was only after a couple of weeks offline that I realized how little I actual require many of the services that I thought I needed. Lesson learned:

If you're going to build something with or without other people's money, make damn sure that it is needed whether your customers are rich or poor.