One of the best ways for a public company to increase its share price is by beating quarterly earnings estimates and raising full year guidance. This is what is routinely referred to as the “beat and raise.” In simple English, beat-and-raise means that the past was better than expected and the future is going to be even better than anticipated. For public companies, the pressure to beat quarterly estimates is so intense that many of them “manipulate” estimates or do tricks to generate additional revenue at the end of the quarter through steep discounting or other weird mechanisms. It is tremendous pressure at the end of every quarter.
One of the biggest benefits of being a startup or a private company is not being constantly measured on your ability to meet quarterly targets. This lets private companies focus on long term goals instead of short term ones. However, there are a few occasions when a startup “interacts with the market” and gets an outside valuation. This mainly happens when raising a financing round. A typical financing round takes a few months to complete and during that time the company is constantly observed by outside investors who, among other things, are trying to gain confidence in management’s ability to execute. As a CEO, one of the best ways to gain investors’ trust is by achieving your existing monthly/quarterly/annual targets. Even better is demonstrating that you are not only exceeding your short term targets (e.g., monthly or quarterly revenue plan) but also increasing mid-term targets (e.g., annual revenue plan). This is the startup’s version of “beat and raise.”