An episode from Season 2 came on the other day, and between the jokes, I could see the perfect example of why I do what I do. Penny has stumbled on a business idea that could get her out of waitressing. She’s excited, but uncertain and insecure, leading her to seek reassurance from Sheldon that she really does have a viable business idea.
Sheldon’s quick math reveals that at her current rate, Penny’s going to pull in a whopping $2600 for the year. Talk about deflating! And what should have been a wake-up call for Penny. As the episode unfolds, she doesn’t get any better at the idea of business. But you can by learning from her mistakes and business sense deficiency. (You can watch the opening clip at YouTube. I couldn’t embed it here for you; sorry.)
As I watched, three business lessons jumped out at me.
- Money coming in the door isn’t the same thing as making money.
Not even close. Penny was so excited because ”In one week, I made $156!” but she’s confusing revenue with profit. It’s an easy trap to fall into when you first see you can get money for what you’re doing, but if you aren’t getting enough, you aren’t really making any.
- Know your numbers.
That means how much your cost is, how much profit you make per item, how long it takes to produce and – ultimately – how much you can/will make. Sheldon runs Penny through some tests to see how quickly she can make a Penny Blossom. Then proceeds to tell her there are young children in sweatshops making more than her. At this point, she should realize she doesn’t have a business idea, she has a nice hobby that will cover some of its own costs.
- Count everything.
You have a lot more costs than just materials. The guys help Penny not only ramp up production when an order for one thousand comes in off her new website, but that free labor can’t be part of her long-term business plan. That 50 cent profit she thinks she’s getting will just evaporate in the long-term if she doesn’t include all her costs.
At the end of the day, business is (that’s is, not maybe could be) about making money. If you’re having trouble connecting the dots to know if that’s happening, I can run your business through a quick assessment to give you a handle on things.