All right. So last week, we talked about making things less dumb. And this was based on Elon Musk's
approach at SpaceX. And it's a five-step approach that's designed to empower your team members to
stop optimizing things that should not even exist in the first place. That's very empowering because
it gives us as team members permission to challenge our assumptions, to reduce complexity,
and to actually just simplify our processes. And so today, this is a fun one. We're going to
talk about black box modeling. And I'm excited for you to hear Dion chat about this. But it's
just a way that we learn how to quickly determine the financial viability of a new product or a
business strategy. So it's going to help cut out some of that emotional thinking that can keep us
stuck. It's going to bring clarity to our process and help us to make well-informed decisions.
And just before we dive in, I do have a pro tip for you all today. And it's about being a change
agent in your business. So I know we've talked about this, but change is inevitable in our lines
of work. But it's really how we respond to change that determines whether or not we're going to
thrive within it. So when change comes, we talked about we can either be a critic, a bystander,
or an advocate. And we want to be advocates in our businesses because we understand that change
is actually essential. So when change comes, instead of getting knocked down by it, we can
actually take a moment to reframe. So we can change the way that we think about change. It's
a little meta there. But it's because great leaders know how to frame change correctly
and make it part of our culture and our team language. So this week, a small challenge is
just to take a moment and ask a really simple question, which is, is there anything in my
workflow that needs to change? Because remember that change is inevitable, but progress is optional.
That's a quote from Dion. All right. So friendly reminder, this time is for you. And we are
nearing the end of our 40 weeks together. So be sure to take advantage of the session and the time
we have. You can engage with emojis, with your reaction buttons, add your questions and comments.
And those of us on Team Brilliant will keep an eye out on the chat to make sure we get to your
questions. And with that, if everyone's ready to dive in, Dion, I will hand it to you.
Excellent, guys. So I don't know how many of you are familiar with the idea of back of the napkin
calculations. This is sort of an expression. Now, one of the things that people who have to invest
money are very good at doing, and they call this sort of the, you know, they can cut to the chase
very quickly and make a decision in under two minutes, whether they want to even take the next
step and listen to your company, you know. So if you ever had to raise capital,
have you ever been through that process? So, as you know, my background, my first,
one of the most intimidating ones was when I had to present to Apex in London. And I was trying to
get to raise $20 million for my business. And I learned so much through that process. And what I
realized is what people were doing over time, you know, I was thinking, how did they make a
decision so quickly, you know, just about my business or whatever. And, and from that, I
developed this very simple idea called black box modeling, like think of a black box. And I thought,
what's the simplest possible way to, to quickly determine if something's useful or viable or
financially, should I invest in this? And if you think about it, you say, well, I'm not a private
investor or private equity fund manager, but in a way you are, because you're investing in you're
giving a piece of your life to something, right? You're exchanging your life for something,
you might as well make it worthwhile. Or maybe you are proposing to, to your, to your boss that
we should invest in X. And it'd be really helpful if you knew what that was. And if you could do a
quick back of the napkin calculation, and get everybody excited about what you're doing.
And of course, you know, people who are that level of finance, you think that
the higher up you go, and people who, you know, who manage billions of dollars,
yes, they deal with complexity, but the things that they use to make decisions on
are actually remarkably simple. They actually use very simple ideas to drive those decisions. And so
what we want to do is we want to cut through the emotion, we don't want to be caught up in
emotional appeal to why we should invest in something. And we want to look very quickly and
say, does this make economic sense? And if it makes economic sense,
what will it cost us in other ways besides financial? What will it cost us in people's
being distracted? Or, you know, you know, maybe we'd be dividing up our,
our customer base, or what are the impacts of doing this?
and it's very interesting because as we go through that process we often find what's the one knob we
need to turn to make it work. So this ties up beautifully with what we did last week,
making things less done. And you remember that step number one, what's step number one in making
things less done? Everybody remember? What's the first thing you should do? Can you remember?
Drop in the chat there. I'll wait until someone does and then I'll keep going. One of you will
remember. Guilbe, we're going to touch on it again in a second, right? Anybody remember step number
one? We eliminate what we don't need. Okay, step number one though. Challenge assumptions. Assume
your requirements are wrong. And the higher up the person's requirements are, the higher up,
more educated they are, more sophisticated, the higher up the old chart they are, you should
question those requirements even more. Remember, first we do is we question and we go through and
we say, how do we make this list? And I'll cover that again because like all these things, they
only can become useful when you find you need them. Any of you right now, let's try to make
this really useful and practical immediately. Are any of you right now thinking about either
personally or in the business, doing some new project and you want to know, is it financially
viable? Maybe you want to get a little, you know, an apartment and you want to do a little Airbnb
with it. Or maybe, you know, you want to make some additions to your home. Or maybe you want to put a
tiny house on the back of your yard. I think I know someone who might be able to help with that.
So whatever you're doing, you know, you're trying, or you're trying to think of, should we
launch this new product in our company? Should we start a subsidiary? Should we invest in something
else? And of course, we're not talking here through investments. What we're looking for is
how to make that quick determination. So here's the concept of black box. A black box, think of
it as a physical box that you might have in front of you. And the box has got a slot on the one side
at the top. And that's where we put cash into the box. And then it's got a slot at the bottom
on the other side. So cash comes in on the one side, goes in on the one side, cash comes out the
other side. And there's this big handle in the middle, like a crank handle. Remember those old
car handles used to crank? Yeah. So think of that. That's it. Those are the three moving parts.
That's all there is. How much cash goes in? Now we don't include debt because that's not your money.
So what actual cash do we have to put in? Right. And that cash would be, and I'm going to give
three examples. We're going to really dig into this. I want to explain the concept really quickly
and then just spend all the time on examples, because I think seeing it may be more useful.
So this is meant to be like a back of a napkin. This isn't trying to work out. It's going to be
$3,914.87. It's going to be, oh, it's going to be 3k. We're just looking for the quick high
level back of napkin number. What's the cash going in? Then the handle, cranking the handle part is
how hard is it to run this business? Can you crank it every day? So if you're doing ads
on Facebook to sell a product, you can crank that every hour. I mean, you can really crank
that thing. Certainly every day you can crank the handle. But if it's something like, you're
selling, you want to rent something, create an apartment rental or real estate rentals,
you're cranking the handle probably once a year if they're short-term rentals. So the time period
it takes to crank that. And then how hard is it to actually crank it? Because the more difficult
and more complex it is, the more you should run away from it. The simpler it is, the more likely
it is to succeed. It's interesting that Warren Buffett, this is his primary way of thinking
about this. As sophisticated as he is, he says, we don't invest in complex businesses.
We only invest in simple businesses. So they buy, you know, Sears candy and so forth, really
straightforward businesses. And he never invested in Microsoft for that reason, because he never
thought he could understand it. But when iPhone became the major thing, he understood a phone,
even though a phone is complex, the business idea is quite simple. And so then he started
investing in Apple, but he didn't invest in Apple for the, it's only recently he started doing that
because his view is, if you don't understand it, don't invest in it. That's a good rule,
a very good rule. Never invest in something you don't understand.
understand that's why you never invest
in your brother-in-law's business
or any family member's business for that matter.
Because the chances of you losing that relationship
because of the two hats issue is going to be,
you know, it's gonna be strained.
So how hard is it to crank the handle?
And then how much cash jumps out the other end?
Now, when we do this back of napkin calculation,
what private equity people or investors
are very good at doing is realizing
what drives those three things, right?
So putting cash in, that's straightforward,
or the actual cash that you have to put in.
So let's say I have to put in $100
and I can crank the handle once a month.
And what comes out the other end,
after I've done all the handle cranking,
I get $50 out at the end of the year.
So I put 100 in, I got 50 out.
Now, so what's the percentage return?
Well, that would just be 50 divided by 100,
so that'll be 50%, right?
It's pretty straightforward.
But if I crank the handle next year
and I don't have to put another 100 in,
I get 50 every year.
Let's say I can put $100 in once into the black box,
crank the handle once a year,
and once a year I get $50,
and I keep getting $50 without putting any more cash in,
then I have a completely different return, right?
So the question is, how often do I have to put money in?
How often can I crank the handle?
How often does the money come out?
So let me decode for you.
Anybody watch Shark Tank?
Yeah?
Anybody seen Shark Tank know what I'm talking about?
Okay, so Shark Tank always,
they always evaluate the business
as five times the revenue.
Well, it should be five times the profit,
which is a very specialized use case,
and those are sophisticated people.
They know that,
but the average person watching Shark Tank doesn't.
So they make this very simple thing.
So if your business makes 100,000 a year,
then they say, okay, it's worth 500,000, right?
So if it's worth 500,000,
and you want me to put in 100,000,
then we can work out what percentage I own.
Okay, we're not digging into that part of it today.
So here's the steps.
You have the three simple steps for breaking that down.
So step one is we want to,
when we work out what's the input, right?
The input is, you know, what's the cash in?
Step one, what's the cash in?
What cash needs to go into the box to make the thing go?
Do not include debt, your actual cash.
Don't include your time and sweat equity
and all these clever things,
just the actual cash in the box.
That's it, just the cash.
Two, crank the handle.
How many hours will this take?
How many people will this take?
How hard is it to turn the handle?
Is it complex business?
You know, if I said, go and create a new cell phone,
that's a complex process.
That's a hard handle to crank.
If I said, start a lawnmower service,
you just need a lawnmower
and know how to push it in this roughly straight line.
So that's an easy handle to crank.
Do we have the expertise to do it?
Have we done it before?
Do we know someone who's done it before?
And, you know, is what we're doing here
been done before or is all this new?
What are we trying to do?
We're trying to find, cranking the handle,
what are the key assumptions that we're making?
Because you remember, we always question our assumptions
because our assumptions,
what do we know about our assumptions?
They're dumb.
What else do we know about the assumptions?
They are wrong.
So they're dumb and they're wrong
and we're trying to make them less dumb and less wrong.
This is a very healthy way
to start looking at a new business
because we make big assumptions.
We launch into it.
And then when it doesn't work,
we look back and go,
oh, we thought that would happen, but it didn't.
We assumed, and we'll go through some of these examples.
And then the third area,
so what's the cash in?
What's the crank effort?
And what's the cash out?
Now the cash out is, what's the revenue?
You remember the rule of three, what's the revenue?
What are the expenses?
What are the profits?
And then we wanna take the profits
and divide it by the cash in
to know what the percentage return is.
Okay, so let's do a couple of quick examples.
So let's assume for a minute,
and I'm gonna switch to actually sharing my screen.
Um, give me one second, get really organized here.
So I'm gonna share my screen
and I'm trying to make it really large.
If you're feeling a little bit lost,
just ask questions, please ask,
because I wanna make this accessible to everybody.
This will help you.
So let's assume, let's start with the super,
does everybody see my screen?
Or do I need to make it even bigger?
Yeah, let's see if I can make this bigger.
Is that better?
Okay.
All right, so let's do this example.
of let's say I want an investment house for Airbnb.
And I found this property for 334,000
for short-term rental.
So that's the project, right?
So step one is figure out the cash in.
Well, of course we have to buy the property,
that's 334,000.
And because it's a rental property,
the bank will probably give me only 70%, right?
Typically you'd actually wanna be, you know, less than 70,
but let's say I can get 70%.
So I picked the number so that we're at a nice
around 100,000 at the end.
So we know roughly that we're gonna have $100,000 of cash
that we're gonna have to put in to this property.
So now the next question, that's step one.
We know what the cash in is gonna be, 100K.
We're not counting the debt
because that's coming from the bank.
Step two, what's the crank effort?
Well, we need to find cleaners, repair people,
we obviously have to close the deal, et cetera.
And we think this will take about four hours a week.
So we're saying, okay, for two days a month,
this could be a great little business.
All right, now the key is to write down your assumptions
so that you can start with the fact
that you know they're wrong and you know they're dumb.
This is a very good.
So how many nights can we rent this out for?
So I'm thinking about what would drive that.
Well, rentals are probably coming from visitors,
not just any visitors, but overnight visitors.
I jumped on ChatGPT and I said, tell me the cities,
and I want you to compare the number of local residents
to overnight visitors and make a ratio out of that.
If you have 100,000 locals and 800,000 overnight visitors,
then the ratio is eight times.
You have eight times more people visiting than live there.
That should be a good rental market, right?
Okay, I'm making this assumption.
So by the way, I ran that.
And two of the top cities,
well, the number one city, where's the best ratio,
number one, if you take overnight visitors,
and then would be Santa Barbara,
because Santa Barbara has about 100,000 people
and it has over 1.3 million visitors.
It has a 13 ratio.
Okay, so that means that we can assume
that we can sell a lot of these nights, right?
So we're gonna assume 85% occupancy.
Maybe it can be higher.
I think Santa Barbara numbers are probably more like 90
or 95, but we'll go with 85.
And then I'll make it, and why am I putting them in blue
is because I wanna nail down my assumptions.
So the little rule of thumb I'm doing here
is I'm writing all my assumptions in blue
and I've made it so that I can change them.
So let's say I'm assuming $175 a night.
I don't know, I'm just guessing.
I asked a couple of friends, I talked to a few people,
seemed like a good number for my town
that I'm buying this in.
So that means how many nights do I have?
So let's look at the cash out.
Let's figure out the revenue.
Remember, revenue, expenses, profit.
What's the revenue?
Again, keep this very high level.
The revenue here is gonna be how many nights do I have?
Well, I said 85%.
So if I look at the formula, 85% times 365 is 310 nights.
How much revenue is that?
Well, 310 nights times $175 is $54,000.
Everybody good?
It's pretty straightforward math so far.
And so the expenses are,
oh, there's a thing called the TOT tax,
which you dig around and each one,
they range from 10 to 15%, it's 15% in California.
And this is for any transitory occupancy tax, TOT.
It's a special tax that if you do Airbnb type,
you have to pay that.
So it's 15%, so that would be $8,000.
That's just 8,000 of the 54.
Cleaning, I'm assuming that we're gonna charge,
get $70 and we have to clean it every time.
Wow, that's a brutal thing, right?
$70 times 310 is $21,000.
Is this starting to look less exciting, this project?
And the debt, well, the debt is,
remember we only put in 100, the bank put in 233.
You've got to pay the bank for the debt.
You can use a little debt calculator for that,
but that's about 20 grand a year.
So we got that.
And then the maintenance, I just threw in 3,000.
I have no idea if that's a good number.
And that ended up at almost exactly what the revenue is.
I'm making $800.
That's a 0.8% return.
And all I did, by the way, is I just took the $832,
divided it by the cash I put in, the 100.
So 800.
and $32 divided by $100,000 is not even 1%.
Okay, let's make it less dumb.
What assumptions are you making that you need to rethink?
What can you delete?
What can you simplify?
Remember the order.
How can we make it go faster?
Can you automate it?
Okay, so Bonnie, I see your hand just went up.
Yeah, this is Robert here.
You know, the whole idea that you...
Bad thing to hear you there, Robert.
Airbnb.
Oh, I'm sorry.
Let me see if I can change this.
Can you hear me now?
Yeah.
Okay.
We do Airbnb and the assumption that you did
that the clean fee, we normally put it on top
of the nightly rent, so that would change your numbers.
Yeah, I still can't hear you there, Robin.
But so I think you're saying something
about the cleaning fee.
Yeah?
Yeah.
Yeah, normally the cleaning fee is added
on top of the nightly.
So yeah.
Right, so you're saying, so exactly.
Well, you're going ahead.
So let me go through.
I made an assumption that it was separate.
And so there's two things I can do to fix it.
One, I can pass that $70 along to this person.
So we'll add the $70 in over here
as part of the nightly rental,
which is I think what you're saying.
I couldn't quite hear you.
In other words, this would go to zero.
Now, suddenly my cash out is $22,000.
Now I'm making a 22% return by making one assumption
because I'm not doing a cleaning fee.
Or another assumption I can make is that
I'll do a two-night minimum rental.
That may cause the occupancy to go down.
Then maybe I don't sell as many
because I insist on two-night minimums, right?
And so that would also, but if I'm passing the fee on
and then the tax issue, if you're still there, Robin,
since you have experience in this,
you already know how to make this less dumb
because you've got an experience in doing this.
So one of the fastest, cheapest, thin slice I can do
is identify my assumptions
and then go and pick up the phone
and call Robin who's done this before
or a friend or somebody who knows what they're doing
and saying, how can I fix this?
Because I can't make 0.8% return.
Well, it can turn out that somebody looks at this
and say, 3000 is too low, you need 5000 here
for your maintenance, et cetera, et cetera.
But now I've got a little plan,
a little model that's quickly shown me
for this to be exciting, how can I make it go faster?
Maybe you speak to two or three people who are doing this
and you find out the best way to promote it.
Maybe you hire a property rental manager,
maybe you do monthly rental slightly longer term, whatever.
And what you need to do,
because what you're doing then
is you're not asking general questions.
As soon as you've got a black box,
you ask very precise, insightful questions.
That's the point.
And you know the impact of those questions
and the answers to those questions,
because immediately when Robin said,
we pass the cleaning fee on to the person renting,
immediately we went from 0.8% return to 20% return.
Does that make sense?
Okay, now I wasn't particularly,
please don't take this as saying,
oh, that's what I should do.
I literally made up those numbers.
I completely made that up as an example to show you
that you figure out your cash,
figure out your assumptions
and what you think the effort is,
take your first guess at what cash out might look like,
and then start applying, making it less down
by applying these five things.
You can't challenge your assumptions
if you don't know what they are.
You can't challenge the requirements
if you haven't got a clear idea of what they are.
Then you ask, what can we delete?
What did we just delete?
The cleaning fee, right?
When we deleted the cleaning fee, what happened?
First, it became a lot simpler.
Maybe I can get a bank to give me more than 70%.
Maybe I can get a bank to give me 75%.
What just happened to my return?
Went way up because I'm using less cash, right?
Now, Robin, I hope we get you back, because I'd love you to weigh in on this.
Do we have you back?
Can you hear me now?
Yeah, let's try.
Okay.
Yeah, you're right on with that type of thinking.
And the only other thing that I would factor into it is the bank loan that you're paying.
That would have to go into the equation too.
Yeah, I've got it there as debt.
If you borrow more money, then the bank loan is going to go up.
Right.
That's true.
I didn't do that in my example.
Exactly.
Right.
Because I'm not actually using a formula.
I did this on a quick back of a napkin calculator and just typed in 20,600.
So you're exactly right.
Again, rule of thumb, you want to know which are the moving parts.
And it's usually surprising, by the way.
It's usually pretty surprising as to what the main knob turning is.
And for instance, what if I got this rental wrong and it's actually 195 on average?
Look what just happened.
My profit just went way up.
So now I know how it all interacts.
And what I learned very quickly is maybe it's not so critical whether I get a 70% or 75%
loan.
Maybe what's more critical, what the percentage loan is.
If the bank's charging me 8% versus 9% or 9.5%, what's the impact of that versus getting
an extra $10 a night versus getting rid of the cleaning fee, et cetera.
So what you're doing is you're creating an interactive little box and you can see how
to crank the handle and you can see what makes it work.
This is a very cheap way to evaluate where something's good.
Now, what makes private equity people very good is their ability to do this in their
heads on the back of a napkin super quickly.
But since you're starting, let me give you another example.
Okay, so another example, I'm just wanting to see.
I will use an actual example from, let's say you decide you want to create a new subscription
product.
So this is a little more in our zone at Brilliant.
So I'll talk about this.
So the project is create a monthly subscription product.
Should we do that?
We're guessing our investment is 60,000.
Notice this time the color is black because all black numbers are calculated.
All blue numbers are the ones I'm entering in manually, right?
So, okay, so I think that, and I'll tell you where the 60,000 comes from in a second.
So the crank effort is, hey, we got to create an app and we got to create content, right?
So we're going to get two people involved.
One is a tech person who runs the app and all that.
And the other person is the content person.
So let's assume, again, we're assuming because we're writing down our assumptions.
This is under our assumptions over here.
That is going to be 10,000 a month.
And we're going to assume that the monthly subscription is $9.95, but I'd just say $10
back of napkin.
And we want to get to 1,000 subscribers and we want to try to do it in six months.
Well, if it's costing us 10 grand a month over six months, assuming that we're not making
very much in the first few months, then six times 10 is 60.
So just back of napkin, I can see that we have to carry it for six months before we
get to this point of making 60,000.
So the idea here is now, well, some of it coming on month two and three, yeah, but I'm
ignoring all this because this is a back of a napkin.
This isn't a full business model.
This is just to help me understand how the black box works for this thing.
Now the revenue is very straightforward, right?
Suppose I have 1,000 people giving me $10 a month, that's 10,000 a month.
The team costs 10,000 a month.
So my cash out is zero.
So what do we call this when the money coming in covers the cost?
Does anyone know what we call this?
Yeah.
Break even.
So we call this our break even.
Break even is when the money you're putting in is going to...
But now here's the interesting thing.
I'm not putting in $60,000 every six months, right?
I'm going to put in $10,000 a month until this thing pays for itself, but then it's
going to carry on giving me $10,000 a month.
So it's not true to say over a six month period, the cash out is zero, but over a 12 month
period, what would it be?
Somebody tell me? Just drop it in the chat. So if it's $10,000 a month coming in, after six months
I've got my $60,000 back that I put in, and then the next six months I get another $60,000. So I'll
have $60,000 return and I will have got my $60,000 back. And then next year I'll have $120,000.
Well, we have to make it, we have to think about, that's pretty good. So again, how do we make this
less dumb? What assumptions are we making that we have to rethink here? So when we look at this,
we say, well, these two people, do they both have to be full-time? Can we get a good tech person for
$5,000 a month? If you can, let me know, I'll hire them. I don't know where you get a tech person for
$5,000 a month. Fantastic if you can, right? So, and then can the tech person be shared amongst
other projects? Does it have to be a full-time person? Can we get a, can we do this as a
contractor? So maybe this tech person, you know, charge up quite a bit in the front end,
right? Maybe the tech person costs a bit to get the app going and then much less to maintain it.
So it may not cost me five times six, $30,000 to get an app because that seems expensive. Hey,
maybe I can go, you know, get the app from someone else. The content person, maybe this can be a
contractor, et cetera. So what I'm doing now is I'm lowering my costs. The monthly subscription
is $10 too little, you know, well, you know, Netflix costs this, this one costs that, et cetera,
et cetera. And you've got to think about the people you're serving and what value you're
producing. And can you get to a thousand subscribers in six months? So what this is
showing me very quickly is what my assumptions are. And I'm already assuming they're dumb. Well,
so far I've gone through all of these and I would bet you that probably every single number in this
highlighted area is probably wrong. Would you agree? All the people at Brilliant are shaking
their heads because they know they're wrong. And so we know they're wrong because there was a time
we thought they were great. Not those exact numbers, but that type of approach. So what
we're doing now is then, then the question is, let's go to point number three. How can I make
this go faster? And this step four year, remember, how can I make it go faster? Well, let me jump
quickly to, well, through ads, right? So what if we put $4,000 of ads in and see where that goes?
We would need somebody to run the ad. You know, I don't know, we don't need two people, but we need
to have somebody run the, the, the ad. We need an ad person, right? Who we assume we can get for
5,000 or pay an external firm or whatever it is. And we're going to assume that to get a new
subscriber is going to cost us $30. So if it costs us $30, that's what we're going to spend
on ads to get one person to sign up, right? Now we know our numbers very precisely at Brilliant
around all this, but if we were spending $30, then $4,000 would give us 133 new people.
And let's assume those subscribers will stay for 12 months. Subscribers don't stay forever.
They drop off after a while. Some will stay for four months, some will stay for two years,
but let's say on average, they stay for 12 months. So then the revenue is going to be 12 months
times the 133. So I'm actually over a one year period, I'm buying a block of $16,000 of revenue
by spending $4,000. Does that sound like a good business? That sounds like an amazing business,
right? Here are the expenses. There's the person who runs the ads. He has the ad cost total of
9,000. So I'm making 11,000 out. So that return is 275% return. But in this business, we call it
return on ad spend. That's what R-O-A-S spell means, return on ad spend. And what it means is
for every $1 we spend in ads, we make $2.75 in profit. Okay, that sounds amazing, except
we know that our assumptions are dumb. And we know we have to challenge them. What can we delete?
Well, there are several things we can delete. This is an area we've spent four years really
perfecting. So it's something we know something about. But I threw in the obvious way somebody
might tackle this the first time round. And so I might say, what can I delete? Do I have to hire
an ad person? Can I hire an ad agency? Is there something else I can do?
externally, most ad agencies will charge you a percentage,
usually about 15% of the total ad spend, which seems about as
dumb as I can imagine. But anyways, what they do, so we
won't do that anymore. We've tried five, eight ad agencies,
and not one of them worked at our level. Secondly, you know,
how can we simplify optimize this? Well, if I made 4000, if I
put 4000 in, and I got 11,000 out, why don't I just use 4000
from the money I took out and pay for next month's one. So
it's a one time investment of 4000. And then I make 11, and I
put four back into the next month and four after that and
four after that. So I don't ever put in more money. So the
return is not 275, but one time 4000. And then it perpetuates
itself. But when it sounds too good to be true, there's usually
some dumb requirement. Okay, guys, I'm sure you get by now
the point, right? It's a lot of fun. But the exercise is to make
you fully aware of the cash you got to put in. What are the
assumptions you're making to crank the handle, get them
documented, become aware what they are and how they affect the
machinery. Make little formulas like I just did quick back of a
napkin. I literally just threw that together. You know, a few
minutes before we we did the training. I just wanted you to
see what it was. And then the last one is the cash out. And
then you've got your assumptions. And then you start
with Okay, I know my assumptions are dumb. And I want to make it
less dumb. So what do you do? You talk to people who know. So
when I first started in online ads, I went to the best person
I knew in the game, who is just starting out in this space. And
that was Pedro Hideo. So I went to Pedro. And I don't you know,
and I signed an agreement with him where he became the
marketing manager for brilliant, technically still is, I think. I
think we've never canceled that agreement. But anyway, he was he
was there. And so we learned so much. I don't even know what a
row as was, you know, I thought was something you row. I don't
know. I had no idea. So but now I know so much more. Why I went
to people to help me make my assumptions less dumb. Okay,
very healthy to start with. We know we're wrong. We just want
to try and be less strong, and next month be less strong and so
forth. Questions. Yeah, thanks, Francis. I see you're getting
that's very good. Yeah, very good. Oh, well, hey, where is
Francis? You guys build apps, right? Where's Francis? He was
there a second ago. I got to find him on the thing here.
Francis, are you there? I know. It's probably late at night in
Dubai. But you guys do this, right? I see you said yes. Yeah,
you guys do this. So you know, we would call you and ask you
all of these things. But when you first started, I'm sure you
made a bunch of really dumb assumptions. Oh, I see, Matt, we
got you there. Hey, Matt, you you do this for a living. We
built a model, we have a model. Tell us a minute, just comment
on how, what were some of the dumb assumptions we made in the
beginning? And well, how do we learn some of that? Since you're
now the expert on this model? I think honestly, primarily that
other people would know our business better than we do. That
was a that was an important one for us was was recognizing that
bringing a stranger into your business because they have the
word consultant before their title would would immediately
like result in a positive return on ad spend. And it just didn't
it didn't happen. Oh, my mic is a little bit you know, because
it's the other side of the desk from me. There we go. Fantastic.
There we go. Also, that again, I think for us, it was actually
assuming that somebody else knew our model better than we did, or
knew our world and space better than we did knew our customers
better than we did. And as we went through this, listening to
somebody who was outside of our business, because they had a
consultant title or something like that would actually be a
better way for us to do this rather than trusting on what we
knew ourselves.
Yeah, I think that's exactly right. I think the most dumb
thing we ever did, I used the phrase earlier that Brilliant
has used five marketing agents of digital agencies, ad
purchasing agencies. And you'd think we would have learned after
the first one, they don't know our business, what Matt just
said. But it took us five to realize.
even wrote a new business model for one of them,
where I said, okay, I'll pay you on the actual profit
and I'll pay you very handsomely.
And then I tried it again, even this year,
Matt, you were part of that.
And we put together a very aggressive for an external group
who could have made 100,000 a month off of us easily,
but they failed miserably
because they don't know our business.
Didn't matter.
So it didn't matter whether they were charging this
or that, we thought that getting the cost down
on percentages and all that work,
there was a completely the wrong assumption.
We just didn't, we were so wrong.
We just didn't know how wrong.
So that's a good thing.
I know I'm hammering this.
It's a very healthy thing to know
that you're probably being dumb.
You're just trying to fit that.
By the way, it doesn't mean you shouldn't do it.
It just means you're gonna go, you mitigating the risk
and each step you're trying to do thin slices
to figure those assumptions out quicker.
That's all you're doing.
We're not saying don't do it because it's dumb.
Because if based on that, you wouldn't do anything
because anything would be done when you first start.
So that's not a reason not to do it.
Just means you just got to take some courage,
thin slice it, push it.
We do have,
we do have some,
some of you are asking for this little worksheet,
this little black box example.
I'm happy to give that.
Let me get that to you.
I'm gonna just drop that in for you, Dalyn,
and then I'll just drop it in.
Slack.
Any questions?
I know normally we give you time to go off,
but this is one you may wanna go
and spend a little more time on, right?
Dalyn, I just dropped in the Edge Slack
where you can get that and just hand the spreadsheet.
I don't know if we can give them the spreadsheet
in that format.
We can try, but you'll get the point.
Bonnie, is your hands raised there again?
Yeah?
Yeah.
Yes, we tried this with Pennsylvania,
getting to do the inspections
for the boroughs and townships.
Then we made assumptions that it spent a lot of time
building websites and didn't get any business out of it.
Then we did the same thing
with a thing called rental guard
that we were gonna do inspections on rentals
when they get in and out.
That didn't get any traction.
Then we were gonna do inspections in Florida
on air conditioning change-outs and free roofs,
and that didn't get any traction.
But right now, we are sitting here
doing what they call a request for bids
because we've hired somebody who requests for proposals
who does know the business,
and he does know how these jurisdictions
hire third-party providers.
So that was a smart move,
and we figured we'd have a runway of six months.
So we took his salary and we said,
okay, we got six months worth of that.
And then while I was at conference,
we were thinking thin slicing,
and then when we did our thing last Wednesday,
so I went to Ben and I went to James
who have contracting businesses in Kansas,
and I said, could we do your inspections?
And they said, sure, if it's allowed.
So I'm in the process of trying to find out
if Kansas could allow third parties to do their inspections.
And I've made a couple of phone calls already,
and it looks like they do on commercial, at least.
And so what we've done is we've taken
what we've learned here on the edge,
and we've applied it to the mistakes
and all the errors that we did in the past,
and we created something now
that didn't slice it enough
that it looks like we're gonna possibly
be able to not take six months,
but maybe a week from now,
we could be doing inspections for Ben and for James.
So just wanted to let you guys know
that we are applying this stuff that we're learning
and it is working.
Great, I really appreciate that, Robin.
So interesting points.
Let's decode some of the stuff Robin just said, right?
So if you have a little model like we just had,
and he made some assumptions,
the minute something changed,
he was able to immediately see
he could lower his investment,
which means his return is gonna come back much quicker.
Number two, he said something really important.
If you don't have the skill,
go and hire the skill you need.
right? Because if you can go and find somebody who already has
that skill, you just cut out so much cost. But you also bring in
their network, you bring in their experience, you bring in
the, they often bring a block of business with them if you hire
well. And when you've got an amazing culture, you can hire
two grades ahead of where you are as a business. Many times
people would love just to be in your environment. Don't don't
miss what how powerful that is. Thirdly, he used step number
four in making things done. How do I make this go faster? Right?
He found a way to make it go faster. So he got an idea. And
notice how he was using thin slicing thinking all the way
through. He kept thin slicing ways to find and to go to
people because you're starting with the end in mind. So you
probably Robin used about eight or nine different ideas from the
edge. Now because now you've got a whole toolbox, you can pull
from all these different elements. So yeah, see, I see
that Jalen already flipped into an Excel spreadsheet for you.
Thanks for doing that Jalen. And you can play with that. So don't
go making investments in real estate because of that little
model. But I have it on record. So, but I do want you to be
super smart. And if the average person could think like this,
can you imagine? Can you imagine how quickly you can evaluate new
products, new initiatives, new markets? You know, you know, in
the in Dan's book, on buying back your time, you know, he
made this very dramatic statement, he said, don't hire
people to perform a function in your business. Hire people to
buy back some of your time. If they're not buying back some of
your time, I would extend that idea to hire someone who can add
a capability that will save you trying to learn it and therefore
buy back your time. A lot of times as entrepreneurs, we're
very capable of learning things, you know, we're very good, we'll
go and learn whatever it takes, like how hard can it be? The
the reality is, if we can hire someone who brings that
expertise, that makes all the difference. And by the way, get
super creative with how you hire people. You don't always, it
often takes no money to solve these problems. Right? And so
what I didn't say in all of this is the relentless focus on
keeping costs down. It's find a way find a way find a way. It's
incredible. I was just listening a few days ago, Tesla did their
quarterly analyst report. And one of the, I've forgotten who
it was, one of the senior people who drive all the costs and
production at Tesla was saying, oh, we took off this one sticker
because it saved us one cent per car. And you go, well, how does
that help? Well, it's the mindset that helps. Because that
one cent, they were putting stickers and nobody ever saw
them. Why are we doing this? Well, it turns out that we're
doing other things that we saved on this, and we saved $1 there
and $3 there. And all these things compound, because of the
relentless, nonstop focus on keeping costs low. We sometimes
do it at that level. But we don't always do it when we're
thinking about how do we keep costs to zero? Can I launch this
with no money? I want to do this new business. Can I do it with
no money? So it's amazing if you can. Any thoughts? Yeah, that's
the book. Buy back your time. I see Francis, you dropped it
there. Yep, that's exactly right. That's the book. Anything
else? We've got a few minutes. Let's drop the, we won't have
breakouts. Obviously, we're going to give you the little
worksheet and the worksheet tries to get you to go and find
a project. Did we drop that already? Thank you. Yeah, we
just did. So look at the little worksheet there. And try to do
this by yourself. I'll be very happy next week to take
questions on this. If you do this and you fail, or you maybe
I made it look easier than it is. I really think it's easy,
but maybe I've been doing it a long time. But you try and then
come back. Anything, a personal project, you want to re
landscape your back garden, whatever your project is. Try
it. Because there's something
in your life right now that needs an evaluation?
So who could use, just by the show of hands,
who could use this right now?
Let me see.
Okay, I see Tyler, Ben, yeah.
Okay, quite a few can use it right now.
Good.
Excellent.
Well, I will give you back your time
and we'll end it there.
I'm gonna hand it back to Jaylen.
All right.
Well, this was a fun conversation.
I can tell from the dialogue, from the chat,
that all of your wheels are turning.
So definitely take this worksheet, the Excel sheet.
You can save that from the chat
and get some projects going
and come back with some questions next week.
And that'll be all for today.
Don't forget, when you hop out of the Zoom call
to fill out the end of call survey.
That'll be so helpful for us.
We'll see you next week.
Bye, everyone.