In the SmartUp methodology, yield is used to make valuation concrete and mathematical rather than speculative. Yonatan Stern explains financial yield through the Price-to-Earnings (P/E) ratio using a bank analogy. A valuation of 20 times earnings is equivalent to a 5% annual yield, similar to depositing $100 in a bank and receiving $5 per year. If a company generates $1 million in net profit and the market expects a 5% yield, the company’s value becomes $20 million. This frames valuation as a direct function of yield instead of hype.
Stern further compares profitable companies to real estate. A business that generates cash is an asset that yields a return, making it attractive to buyers looking for predictable income-generating machines. Because the yield is tangible, the exit potential becomes more predictable than relying on speculative IPO outcomes.
Yield is also used operationally to evaluate growth engines. In this context, yield measures how much output is produced from a given input of money or effort. A scalable growth engine is non-linear, meaning a small increase in input leads to a disproportionately large increase in output. If growth is linear – where doubling output requires doubling expenses or headcount – the business model is unlikely to scale profitably.
The lectures also apply the concept of yield to human capital through Price’s Law. According to this principle, 50% of the work in an organization is produced by the square root of the total number of employees. For example, in a company with 100 employees, only 10 people generate half of the value. This is used to argue against team bloat, as adding more people often produces diminishing yield while increasing costs and bureaucracy.
