I was tempted today to write about our Bumblehood portal news - start of our new community project, professional, inexpensive (or even free of charge for our community members) travel guides for everybody, but I couldn't take it from Vedran (the "father" of this project) who will write about that topic soon, probably right about the time our Kindle eBook sales start (if "the Kindle team" holds the deadline, that should be sometime mid February).
So, for this blog I am going to cover one thing which bothers me most of my entrepreneurial life. Still does at the moment. Predictions!

Let's assume you are a young "entrepreneur-to-be" and you have "one great idea" (who does not?) which you want to push to the market (and get sooo rich that you can buy Google!). You start thinking about it (the idea, not Google), put first brainstorming ideas to paper, sleep less, think more, figure out you are not-so-good in Excel as you thought you were (yeah, right, you DO need to learn what the "goal seek" function does!) and finally you finish up with, (*insert dramatic music here*) - the first business model, usually called "the beast" or "when-you-read-me-again-you-will-not-understand-me".

No panic, that's normal. People tend to overcomplicate everything when they think about the model of the idea for the first time. Now, what is important for the young entrepreneur-to-be is to be consistent and patient with iterations of the model. Iterate, make it simpler, iterate, make it more simple, iterate, make it even more simple and at the end, when you have the final model which is so simple that you can understand it "no problemo". Then (not before!) you ask several people to read it and give his/her first opinion. And then, guess what? "Sorry, I didn't get this", "Can you explain how do you plan to do this".
So - back to the "make me more simple" table. Already bored? Well, if you are, entrepreneurship is not for you. If you still stand, welcome to the club.

And then, somewhere on your way of progress with your new ideas and the business plan, you will come to the point when you start asking yourself: "How will I make money with this thing?" Again no panic, every entrepreneur-to-be (also called '"the founder” among the VCs or "the fool" among friends) comes to that point, because, guess what - your business model must earn something, right? If it doesn't you have two options, either drop it or continue sleeping and eating at your favorite hostel "Chez Mama".
And when you come to the point of asking yourself how your business will earn money, then you come to the point of predictions!

And here, my friend, nobody can help you. This is the Mordor of every single entrepreneur-to-be, this is "the final divine truth" you have to seek and be sure not to mistake (at least not to mistake too much). Trust me, if you want to do something new, something worth spending your time and efforts, something you will put all your energy into, there is this one topic of predictions NOBODY can help you with.
Every single business model idea will have variables which form the magic formula "How to earn money?" Let's write a simple example for a small family restaurant which sells exotic soups to vegetarians in Soho (New York):

Money earned = "number of vegetarians who will come to my restaurant that live or work in Soho" *

"number of times they will come per month" *

("number of those who stay loyal during more months" + "newcomers") *

"average number of soups they will eat per meal" *

"how many meals per day" (maybe both lunch and dinner, maybe not?) *

"do I offer new soups every day/ week/month so they don't get bored" *

"how much does one average meal cost" *

"what are my costs to run the business" *

...

You get the picture, right? And this is just about a small family restaurant, not about hardware machines paired with hi-tech software which will navigate a laser beam in eye surgery. (BTW, it is rather good that small family restaurant owners usually do not ask themselves these questions, or we would have nobody opening restaurants. Many owners close their businesses during the first year simply because they do not ask themselves those questions.)

All the variables have to be predicted and put in place for your business model to work. This is it, this is why starting a business is so fun to do. You get one good idea and all of a sudden you find yourself in deep ... well, you know where.
Maybe this whole mess with variables and predictions would not be so bad if you just have to deal with those parts of the problem. But there is something you have to know in advance - and it ain't pretty. Most of you already know this, many of you will find out soon if you are following the path of entrepreneurship - EVERY single investor (if it is not from the class of 3F - family, fools, friends) will ask you to EXACTLY specify to him the revenue formula and exact numbers for each and every variable you can think of. And it is not even the worst thing - they will pretend to be very clever and they will ask you trick questions about each variable. Of course, usually they know less than you do, so they just pretend and use their common sense and a bit of experience.

So how to work out this problem? Think about it and come back in 10 days, I will write my point of view about this topic.
And don't forget, new projects and companies fail because founders usually stop working on them. Don't be one of them. Work out your "profit formula" well.

Posted by Boro Milivojevic on January 28th, 2010 --- Permalink --- Tagged in categories: What's up --- Comments on Forum