Counting Your Chickens

It takes a considerable amount of effort to not get too excited about a new idea as we discussed yesterday when looking at the idea of doing more comprehensive research.  In my mind the desire to skip the research phase of business development doesn’t come from sloppy behaviour or even just plain excitement, it comes from a deeper darker inherent form of greed.

We’re all guilty of it sometimes.  We get a new idea, we start thinking about the possibilities and immediately we start doing stupid internet marketer math.

“If there are 1,000,000 people buying these things every month and I get just 0.5% of those buyers at $22 per purchase, I’ll have built a six-figure business!  Surely it can’t be too hard to get 0.5% of a market!?!”

Just on a bit of a tangent, internet marketer math is one of those things I really hate in life – it’s up there with skinny jeans for men, black liquorice and David Hasselhoff.

You’re not a singer, Hasselhoff!  It doesn’t matter how many albums the Germans buy, they have no taste!  You’re not a singer.

The internet marketer math I hate the most often revolves around memberships and continuity programs.  It goes a little something like this:

“If you get add just one new customer per day to your $30/mth membership program, then in 12 months you’ll have a six-figure annual run rate business.”

There is so much bullshit in that sentence that you could fertilize a small farm with it.

There are a couple of major leaps of logical craziness in that sentence: the first one is that you can add one person a day, every day for twelve months off a zero base.  Good luck with that, I wish you well.  The truth is, it will be MUCH harder to do that than you think AND you’ll spend money to do it.

Which leads me to the second point, that sentence confuses “annual run rate” (which is a crap fairy dust metric) with net income.  You’re not taking that money home, you have these little things called costs.  And to acquire those kinds of customer numbers, you will be buying traffic for sure.

And the third issue is that you will have people dropping out of the program, you need to factor in some kind of rate of churn.  Most people who use that kind of dodgy math conveniently ignore churn, but that’s not a bright shiny rainbow, that’s the dirty reality of running a continuity program.

Here’s a good piece of advice, you don’t even have to pay for it.  If someone starts using those kinds of magical compounding numbers talking about your potential growth in your business, they are either picking your pocket while they’ve distracted you or they are trying to sell you some magic beans.  Just about every single time I’ve seen someone use those numbers to validate what they are talking about, they are trying to sell you something.

Which ties in nicely with where I started this post – greed and counting your chickens before they hatch.  We start convincing ourselves that if we would just get moving a little bit quicker, the money will start flowing in and the world will be your oyster.

I had a coaching client of mine use this logic recently, he said, “If I can just get this idea moving, start selling the product, it will generate enough income that I’ll be able to swing back around and fix the stuff that I had to rush to get my MVP (minimum viable product) out the door.”

I started making a siren sound on the Skype call like someone had just tried to rob a liquor store in a bad part of Philadelphia.

He was counting his chickens.  Not only was he confusing creating an MVP with cutting corners, but he was thinking about his fat stacks of Benjamins too.

(Side note: for those of you who aren’t nearly as cool and down with the lingo that the kids today use, “Benjamins” are US$100 bill – they have Benjamin Franklin on them, yo)

I stopped him in his tracks and forced him to walk through his delivery model, logistics and marketing plan.  We found probably a dozen flaws in just a half an hour and at least ten of them were easily fixed.  One was a show stopper though!  There was a really, really strong possibility that PayPal and Stripe would close his account if he sold this particular product because it was a grey area for their terms of service.

He was doing cash flow analysis and looking at funding a second generation of his product to be made in China, etc… He was counting his chickens before they hatched!

I’m a big believer in actually being pessimistic and almost cynical with any kind of financial modelling I do with new ideas.  For Casual Marketer, my initial business case had ZERO customers in year one – I started from a place of zero revenue.  The idea was that I was making an investment in creating the product and eventually that could be leveraged.  After a few iterations, I flexed in a bit of revenue and customer uptake, but again, really conservative numbers.  I didn’t want to get all excited and then be disappointed and give up if I didn’t hit my numbers.

You probably don’t need to be quite as extreme as I am, but I suggest that you apply a healthy dose of cynicism to any projects you’re making about your financials before you start and don’t let your desire to “collect the paper” (another cool way of saying “get paid”) cloud your judgement.

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