If you’ve ever wondered, how do entrepreneurs think? Here’s an inside look into how my brain works.
I was recently in Miami and stopped by an ice cream shop with my girlfriend. They have this really cool nitrogen ice cream that I wanted to try. I, of course, got Nutella mixed into mine.
We sat down shortly after getting our ice cream. Everything was perfect: the conversation, the weather, the ice cream.. but, after a minute, my mind started fading away.
Here we go again.
I start doing the math behind the numbers…
I can’t turn it off. And, to be honest, I don’t really want to either.
It’s a fun game I play with myself in every store, shop, or business I walk into or come across.
I start doing all the math behind the ice cream shop’s numbers to try and guess how much profit (or loss) they are making.
I first look at the price of my ice cream, check the prices on the board, and try to estimate an average order value per customer. How much money will each customer spend?
I then watch the shop and see how many people flow in while I’m there. Is the foot traffic high or low? Is the store empty or packed with customers ready to buy?
Based on that, I try to guess how many people per hour come. I try to account for the time of day: is this a busy hour, will other hours be similar, etc. — and then guess an average number per hour throughout the day. Coffee shops, for example, make a big share of their daily revenue during early-morning rush-hour, but those numbers don’t stay consistent throughout the day.
After calculating the daily average, I then try to guess if this day as a whole is common or if it’s above average. Since we came on Friday and I’m guessing that’s busier than, say, Tuesdays, I need to reduce the daily average to account for this.
I multiply that by the average order value estimate that I figured out before to get a revenue per day. That’s how much they make every single day on average. I then multiply that by 30 to get a monthly revenue total.
Next step on the list is to understand the business’ expenses and costs. I go through the same exercise as above, calculating how much they spend every month on things such as rent, utilities, insurance, employees’ wages, supplies, ice cream, etc.
I then take revenue and subtract the expenses –and get a monthly profit (or loss), and extrapolate that for the year.
You’d think we’d be done by now, but this is where it gets even more interesting:
If it’s positive, my mind quickly races to the startup costs of opening a similar business: equipment, machinery…
I then calculate how long until my initial investment would be paid back. Are we talking about six months, three years, or fifteen years?
If the numbers look good, my next thought is:
Should I open an ice cream shop?
I obviously don’t go ahead and open a store every time I go through this drill. And it’s clearly not a perfect science. There are, of course, many things I could have estimated inaccurately or that I could be forgetting. And there are things that there is just no way for me to know: maybe they inherited the place and they don’t pay rent, for example.
From running a multi-million dollar company myself I know how there are many details you need to uncover. But I find this game gives me a chance to exercise my business muscles and apply it to a different type of business. It stretches my thinking and works out my critical thinking skills.
And this is what happens every time I walk into a store or online business I find interesting.
For whatever reason, this is what goes through my head. It’s a game: will this store or business still be running in six months, or will this be another entrepreneurial victim?
I don’t just do this when I’m getting ice cream though. I do this for other businesses I come across that intrigues me all the time: SaaS companies, agencies, ice cream shops, it doesn’t matter.
This has been my mindset since I was fifteen and sold designer bags on eBay. Back then, I would be on a constant hunting state –always looking for a new product that I could profit off. It’s still the same way, but I do have now over a decade of experience in business.
And the truth is, it’s not even about making money (at least not anymore). It’s just fun. It keeps me sharp, and it excites me. It’s also good practice for when I open new business through the years or invest in other companies through The Polpo Group.
It gets me thinking about different things and situations my business would never encounter. It’s my personal sudoku. And I love it.
Many people ask me if entrepreneurship is a healthy discipline.
I don’t shy away from the fact that this “thrill of the hunt” has a certain obsessive tendency to it. I get where they are coming from. With the rise of social media, we now have a first-row seat to the number of hours most entrepreneurs, CEOs and business owners put in their companies (fake Instagram #hustle wanna-be’s aside).
I have been there too. Entrepreneurship is an emotional rollercoaster, and it can get to you if you let it. There have been periods in my life of heavy drinking, deep depression, and forceful anxiety. I am only now starting to understand that actions are just that, actions. They are neither good or bad, but it’s the meaning we assign to them that can get the best out of us and trigger unhealthy behavior. It’s our job to find ways to reduce its emotional effects and learn how to always remain in control of our reaction. So, hopefully this gave you a snipit of answering the question, how do entrepreneurs think?