What is the Value of Your Brow Business (Investors perspe...

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Tops Pricing

2. The Reality Check

While many artists might throw around claims that their brow business is worth figures like "USD 100,000," "a quarter of a million," "half a million," or even a lofty "one million," the reality often tells a different story. The first point to understand is that the term "value" in a business context is not an abstract or arbitrary figure. It represents what the business could realistically be sold for or what an investor might be willing to invest. In simpler terms, value must have the potential for liquidity; it's not just a subjective opinion held by the business owner.

Therefore, when evaluating brow businesses regarding actual market value, there's often a stark difference between the owner's perception and what an investor would consider a fair valuation. The key takeaway here is that determining the actual value requires a more grounded approach that factors in tangible metrics and investor outlook rather than just emotional attachment or perceived worth.

3. Price-to-Earnings Approach

Valuation Based on Net Profit and Earnings Multiplier

When using a traditional valuation method like the Price-to-Earnings (P/E) ratio, the value of a brow business hinges on its yearly net profit multiplied by an industry-specific earnings multiplier. For most small businesses in the various sub-categories of the beauty industry, this multiplier tends to be around 5 or 6. This can be sobering news for many artists, primarily because many haven't factored in the cost of their labor into the equation.

Understanding Your Role in Valuation

To understand your brow business's worth accurately, you'll first need to calculate the cost of replacing yourself within the business. This includes salary and associated employment costs such as taxes, insurance, and other potential expenses. When many artists recalculate their net yearly profit after making these deductions, they often find that the actual value of their business decreases significantly. To get a clearer idea, you can use the following formula:

Value of Business=(Net Profit per Year−Cost of Replacing You)×5

4. Other Approaches

This methodology is akin to the Seller’s Discretionary Earnings (SDE) approach, which adjusts net profit by adding back in owner benefits like salary and perks. Although there are other traditional methods, like the Discounted Cash Flow (DCF) approach, most of these methods don't generate a particularly high valuation for most small-brow businesses where the artist plays a central role.

In essence, while artists may consider their brow business to be highly valuable from an emotional or skill-based standpoint, the financial metrics commonly used for business valuation often paint a different picture. Awareness of this gap between perceived and actual value can be instrumental for artists contemplating a future investment or even a potential business sale.

When the Owner is Irreplaceable

Sometimes, it's particularly challenging even to consider the prospect of hiring a replacement because the business owner is so deeply entwined with the business. In such unique cases, valuing the business hinges on the condition that the indispensable person (likely you) remains actively involved for a predetermined period. This adds a layer of conditionality to any valuation figure you arrive at.

Essentially, this scenario is akin to calculating an employee's net worth based on the assumption that they will remain with a specific company for five years. The valuation then becomes too speculative and hard to nail down with any degree of certainty.

Therefore, traditional valuation methods like the Price-to-Earnings ratio become less applicable for most artists deeply tied to their brow business. These classical approaches generally work well when you can theoretically separate yourself from the business on paper without affecting its functioning. If that's not possible, the valuation becomes murky and less reliable.

5. Risk capitalist perspective

Moving away from the classic approach

Many brow artists who own businesses often say, "The classic valuation method doesn't capture all the assets and growth potential of my business!" It's a sentiment that can even perplex seasoned investors, some of whom have been in the beauty industry for over 34 years. They find such claims a bit hard to quantify. However, it's true that when we're discussing risk capital, a business's valuation can exceed what you'd arrive at using more traditional methods.

In search of the “hockey stick”

So, what exactly is this "hockey stick" we hear about in the context of risk capital? The term describes a particular growth trajectory for a business. Visualize an actual hockey stick; it's flat for a good stretch and then curves upward sharply. Similarly, a business might initially experience modest growth but is expected to see a sudden, sharp surge in revenue or customer base. On a graph, this kind of growth really does look like a hockey stick—the "blade" represents the initial period of flat growth, and the "shaft" symbolizes the sudden rise.

Venture capitalists are particularly interested in this "hockey stick" pattern. Why? Because they're looking for high returns on their investment. These investors pour money into startups and new ventures, expecting these businesses to scale up and become highly profitable. When a business experiences this rapid, hockey stick-like growth, venture capitalists can often make back their investment many times over. This enables them to offset the losses from other, less successful investments.

So, when evaluating the worth of your brow business, if you can demonstrate real potential for this kind of exponential growth, then the valuation criteria change entirely. In such scenarios, the worth of your business could very well meet or even surpass the numbers we initially mentioned.

Probability of “hockey stick” growth in brow business

When considering the likelihood of "hockey stick" growth in the brow business, two crucial, interrelated factors come into play: substantial proof of high demand and unique, proprietary assets. Without these key elements, the chances of convincing venture capitalists to agree to a high valuation for your business are slim.

Understanding "High Demand”

While "high demand" isn't a formal economic term, it essentially refers to a widespread, intrinsic need for what your brow business offers. This means you should aim to provide a solution that addresses a problem for many people. Once you consider this, you'll realize that there are only a limited number of such "problem-solution opportunities" within the brow business sector.

Intangible Solutions Explored

When discussing intangible solutions, the focus is primarily on brow-related services and training programs. The last significant surge in demand that we saw was with the advent of microblading around 2015. This led to an extraordinary "hockey stick" growth for the entire industry, peaking between 2016 and 2018. Since then, there have been minor surges, but nothing that comes close to that level of impact. So, if your brow business is centered on offering well-established services like Powder Brows or Microblading, albeit with slight variations, this is unlikely to attract venture capitalists looking for exponential growth opportunities.

The key takeaway is this: For a venture capitalist, doing the same thing in a slightly different way doesn't make a compelling case for hockey stick growth. Even scaling your service—such as offering training online—isn't a unique competitive advantage if everyone else in the industry is doing the same.

6. Physical Products

The Potential of Physcical Products

When examining the last 15 years of investments in the beauty business and related startups, one avenue seems to offer potential - physical products. However, this path is extremely challenging and unlikely to result in the sort of exponential growth that attracts venture capital. The market for physical products like PMU pigments, brow serums, and PMU machines is already well-established. Entering this market is straightforward; you can easily source these products from existing manufacturers and add your brand name. But this also means there's little room for innovation or differentiation.

Initial Investments and Market Saturation

Launching physical products specific to the brow business generally requires a larger initial investment. Even after that investment, these products often offer nothing particularly novel or impossible to replicate. If a product like brow serum, PMU machines, or other consumables can be easily sourced as a "white label" product from existing manufacturers, then achieving exponential growth in today's competitive marketplace becomes almost an insurmountable challenge.

Given these constraints, it's highly unlikely that a venture capitalist would be convinced that your particular version of an existing product—be it a PMU machine, pigment, or brow serum—could generate the coveted "hockey stick" growth. The high level of market saturation and the ease with which products can be duplicated make this a less attractive investment for those seeking exponential returns. Criteria for a Truly Novel Concept

So, if you aim to position your brow business as having something absolutely novel, capable of generating that elusive "hockey stick" growth, now's your chance to shine. Investors are indeed open to backing such innovative ventures, but the initial criteria for attracting them is clear: your business must offer a differentiated solution to existing problems, one that has the potential to create a "huge demand.”

7. The Proprietary Aspect

Trademarks and Patterns Explained

The second pillar, just as critical as "huge demand," is the proprietary nature of your business. This goes beyond simply differentiating your brow service from others in the market. What really matters here is how you can protect that differentiation. Convincing investors to back a significant valuation becomes far more challenging without a protective edge.

Paths to Proprietary Advantages in Your Brow Business

Fortunately, there aren't too many routes to explore, simplifying the task. The downside is that most of these options are either difficult to achieve or require substantial initial investments. Let's look at the three major avenues for establishing proprietary safeguards for your brow business: trademarks (or patents), domain names, and technical solutions.

Trademarks Versus Patents: The Key Differences

So, what differentiates a trademark from a patent? Think of a trademark as your business's unique name tag or identifier. A symbol, phrase, or word signals to customers, "This product or service is uniquely mine!" Take the name "Nike" and its iconic "swoosh" logo, for example. These trademarks inform you that the apparel or shoes you're purchasing originate from Nike. Trademarks help protect your brand from imitators or others trying to create consumer confusion through similar branding.

On the other hand, a patent is akin to an exclusive license, granting you the sole right to produce, use, or sell a particular invention for a specific period, usually up to 20 years. For instance, if you invent a groundbreaking technique for brow microblading, securing a patent means that for the life of that patent, no one else can legally offer the same microblading technique. This safeguards your creative work and investment, preventing others from duplicating your unique offering.

Practical Implications: Patents Are Highly Unlikely

In the realm of the brow business, the prospects of securing a groundbreaking patent are slim to none. While theoretically, you could don an engineering hat and invent a novel Permanent Makeup (PMU) machine, the likelihood of that innovation being both unique and patentable is minuscule, akin to finding a cure for cancer. This same daunting challenge applies to formulating a new type of pigment or other brow-related products and supplies.

Upon diving into the subject matter, you'll find an extensive sea of already-patented formulas, production techniques, and solutions—often initially created for different industries. Crafting something genuinely new in this crowded space, even with a strong background in chemistry or other sciences, is as unlikely as concocting a delicious, affordable ice cream or cake that actually helps consumers lose weight rather than gain it.

8. Trademarks

Trademark: A Viable Route to Proprietary Business

This is a feasible avenue for establishing a proprietary aspect in your brow business when considering trademarks. However, the value and utility of a trademark can be complex and nuanced.

Types of Trademarks Explained

Trademarks can take various forms: they can be a word mark, a figurative mark, or a combination of both. A word trademark focuses on a specific word or set of words—take "Apple" in the tech world, for example. You're safeguarding the name, independent of its visual representation or font. On the other hand, a figurative mark emphasizes the visual symbol rather than the wording. The Nike "swoosh" is a classic example. Then there's the combined trademark, which fuses both the name and the visual elements. McDonald's golden arches, accompanied by the word "McDonald's," serve as an apt illustration. In this setup, both the name and the design are protected as a single entity.

The Practical Value of Word Trademarks

Of these options, a word mark offers the most tangible protection. Why is that? A word mark, if registered across the appropriate classes related to the brow business, can give you a competitive edge. In the eyes of potential investors, other types of trademarks may appear as mere "vanity solutions" because it's relatively straightforward for competitors to design a distinct trademark and register it in the same classes. Owning a word mark, however, grants robust protection. No one else can use that term within the protected classes, regardless of the visual form they choose for it. In summary, while established companies like McDonald's or Nike would need to protect their recognizable symbols through figurative trademarks, startups will find the most practical value in word marks.

However, when it comes to word trademarks, one should evaluate critically how hard it would be to get a similar trademark. If the word trademark registered is a long-term term consisting of many words, including one with some brand potential, the value of having such a trademark is very little for an investor because they know that the potential of success with such applications is practically always 100%.

The Complex Landscape of Trademark Acquisition

Obtaining a short and high brand potential value word trademark is often akin to a lottery game. Many promising applications have failed over the last 15 years, while others that initially seemed risky have succeeded. Additionally, with the advent of AI, there has been a surge in malicious challenges or applications. Securing a word mark that offers true protection can become a strenuous endeavor. It's not uncommon for existing trademark owners—or their legal representatives—to challenge new trademarks to force a "co-existence" agreement, even when your trademark doesn't realistically impede their operations. Consequently, you may find yourself entangled in negotiations or even relinquishing classes or subcategories to counter these so-called "trademark terrorists.”

9. Domain names

The Importance of a ".com" Domain Name for Proprietary Value

Having a unique and proprietary domain name is another avenue for ensuring some level of protection and uniqueness for your brow business. However, this area can also present its fair share of challenges concerning domain extensions. Many entrepreneurs may try to persuade venture capitalists that extensions like ".io," ".ai," or even specialized ones like ".studio," ".art," or ".digital" are just as valuable as the gold standard “.com."

The Dominance of “.com"

When it comes to assessing the value of a domain name in the brow business, the reality is that ".com" reigns supreme. Any attempts to argue otherwise usually don't find much traction among venture capitalists. This is especially true if a competing business either already owns the corresponding ".com" domain or has the potential to acquire it. Though there can be exceptions where a business succeeds with a network of country-specific domain names, it generally implies that the business activities are confined to those specific countries.

Investment Needed for a Generic “.com"

Acquiring a generic ".com" domain name within the brow business typically requires a significant initial investment. Prices can range from $10,000 to higher five-figure sums. Some popular generic names, like "microblading.com," are no longer available because the current owners have made a principled decision not to sell. The domain "ombrebrows.com," for instance, is listed for $25,000, and it's unlikely you'll find it for much less.

Advantages of Owning a Generic ".com" Domain

High costs aside, owning a generic ".com" domain name comes with multiple benefits, including better reach, discoverability, and domain authority. You also eliminate the need to register a word trademark for the name since these are often unenforceable if the term is generic. Moreover, a well-optimized website under such a domain has the potential to outrank many competitors in terms of web traffic.

In summary, a well-chosen generic ".com" domain name can add considerable proprietary value to your brow business in the eyes of venture capitalists. However, securing such a domain name is often difficult and usually requires a substantial financial investment.

Technical Solutions as a Proprietary Advantage

The third avenue for securing a proprietary edge in your brow business involves technical solutions. Unlike patents, trademarks, or generic domain names, technical solutions don't offer ironclad protection. However, the complexity of the technology could serve as a deterrent for would-be competitors. This complexity could signal to venture capitalists that the likelihood of another entity embarking on a similar technological venture is low. Therefore, technical solutions can bolster the proprietary strength of your brow business.

10. Conclusions

A common misconception among brow artists and business owners is the overvaluation of their enterprises. In truth, many brow businesses have low or even negligible market value, making them "uninvestable" in the eyes of venture capitalists.

The traditional method of evaluating a brow business involves an earnings multiplier adjusted for the artist's contributions and profits. This approach often results in valuations tied closely to the average net profit minus the artist's potential wage multiplied by five. Applying this formula typically reduces the business's estimated value to a modest sum.

Further complicating matters, some brow businesses are so reliant on a single individual that they can't be objectively valued. No matter how promising the outlook may seem to potential buyers or investors, this dependency is a significant red flag.

For a brow business to attract venture capital and be deemed "investable," it must demonstrate the potential for exponential "hockey stick" growth. This generally requires fulfilling a large market demand and possessing proprietary features. The market is already saturated while meeting high demand is feasible with digital products without massive initial investment. Physical products often require substantial upfront costs.

To genuinely offer proprietary value, a brow business must hold trademarks, patents, own generic ".com" domain names, or have unique technical solutions that are difficult to replicate. Unfortunately, most brow businesses don't meet these criteria.

What is the Value of Your Brow Business (Investors perspective)

"Many brow artists claim their businesses are worth tens of thousands, hundreds of thousands of dollars, or even more. Let's explore this valuation through the lens of a venture capitalist. Often, the reality turns out to be absolutely different. "

1. Background

2. The Reality Check

3. Price-to-Earnings Approach