Back-of-the-envelope math

0:03 Welcome to business purpose and Clarity with patreon your host we talk about startup live insights practical tips mistakes failures and everything between do you love math are you good at calculating stuff well in this episode you don't need math but you need to figure out some numbers don't worry it's not complicated back of the envelope type of stuff you can do it just with the pen and paper but it's important that you actually do that because I have seen a lot of startups who are not doing it this is where you should start you should really look at is there a business case here can I do this thing what I'm planning to do I'm already doing in a way that is profitable can I make it in a way that it's affordable for the customers that they're actually willing to pay for the stuff is the price point appealing does the process work all together so that you know it's not exactly there you know by the every.

1:06 Penny and sent but I know that it's in the neighborhood that we have like a fifty percent or seventy percent or whatever profit margin and you know there's enough people in the world who can actually theoretically and potentially buy it I'm quite disappointed in a lot of companies I'm talking with early stage startups and sometimes 10 accelerators so they are still figuring out their business models but they haven't done this math and it's a waste of time for everyone if it's pretty obvious that you just don't have a market in my episode with who is the co-founder of Skype and the Starship Technologies who just traced 100 million last year 200 million altogether for his company he spoke like two hours so you check out the episode The Impossible equation is the title for that episode if you pay attention what he's saying and I'll try to emphasize it as well in his business cases when he's evaluating whether to go to the business.

2:08 He doesn't start with the technology he start with this stuff is there business case in the case of Skype he figured out that it's just really expensive to call to the London from Tallinn Estonia or some other places so it was 100 or thousand fold more cheaper to use IP Internet Protocol for the same amount of information meaning the voice audio so that's how it started like hey we can do this like 100 000 times more cheaper by just using a different way of transferring the audio data and that's how Skype started it does not like that hey we've been doing this peer-to-peer technology before let's use it for something else and what's available well yeah there seems to be like this audio and video business case well maybe it was like that as well but still they needed the back back of the envelope calculations from the beginning but my understanding.

3:13 Is that they really started from the business case and then figure out that how they can do it and then they found out that they have the Technology Center means to do it a similar thing with his next company last mile delivery saw something nobody wants to pay for and they are really the growing business area where a minimum of 2 billion people are willing and wanting to to get stuff to take home door delivered but they don't want to pay much for those deliveries so at the moment when he started there wasn't uh a solid business case for that because technology was not in in the level but he figured out that it's probably something in the neighborhood of one Euro US dollar people are willing to pay for that and that's what it should be and then from that Revelation that two billion people wanting to get regular stuff daily or weekly yeah it sounds like a business case but can we do it it's the technology it's the process where we can actually deal with that price point and that's raising a lot of money for it and also.

4:17 Having a lot of those delivery robots working as we speak or as you hear me talking that's the pack of the envelope what I'm meaning you figure out before you go too far that are people willing to pay for what are they willing to pay for the stuff and then can you actually deliver can you do something which actually hits that price point then you start to figure out how you can do it what other Technologies to do it and doing the business case because if you don't do that you are in trouble later on you you need to invent stuff and it still may not work because it's hard to fool the math if you cannot make it profitable if you cannot make the customers to pay for the stuff it doesn't work so don't waste time yours or anybody else's so please do a little bit of math back of the envelope is good enough all right.