So I started to put together a kind of “business plan”. I didn’t want to go for a 100 page document describing every second in next 10 years, which then breaks apart after two weeks… I decided to 1) make a list of assumptions, 2) run financial (break-even) calculations on them and 3) try to verify the assumptions, ie converting them from guesstimates to hard facts, as close as possible.

The assumptions included some boring input data for the financial calculations, eg salaries and other costs, pricing models and estimates and especially my belief that I know what people know better than they do. This may sound quite counter-intuitive, but I don’t believe in marketing research, because I am convinced people cannot formulate what they really want, if it doesn’t exist yet. There are many proofs of this, ranging from Crocs to iPod. See also Malcolm Gladwell’s talk on this topic.

Then I started crunching the numbers. I wanted to implement a pricing plan where you get a discount from your monthly fee if you get me another new customer. The great disadvantage of this model is every customer pays different fee and it’s damn hard to model In a simplified model, it’s a pyramid, where only the guys at the base pay a fee. This pyramid is mathematically a geometric sequence. And if you have 200 clients and want to calculate how many of them are the paying ones, you have to reverse the geometric sequence sum function, which is a exponential function, and you get… a logarithmic function! Oh my God… I had to really refresh my school maths not used for so long. But I got it right. At least I hope so

MAKING A DECISION TO GIVE IT A GREEN LIGHT

I was still not sure. There are still so many factors that are impossible to validate. It’s a big risk. It is said that less clever people are better entrepreneurs, because they are not able to foresee all the risks looming ahead, so the ideas seem less risky to them. They are also less prone to the “perfection paralysis”. Maybe it would be better if I was dumb and brave. But then I couldn’t do the logarithmic calculation… Damn… From better to worse.

Recently I started a project for John Vanhara. He’s an entrepreneur running several businesses in California. John is also blogging about it at podnikanivusa.com (in Czech). His approach is that if he has an idea, he starts without a detailed business plan, betting on that he will find out on the go how to do it right. This inspired me to give it a try as well, so John, thanks for that.