All businesses share the same underlying foundation: a flow of money in and out. The money in has to cover the costs of the money out. It has to pay for the production of your product or service, and have enough left over to fund growth and expansion for the future. This is the basic equation whether you’re Amazon or General Electric or Tesla. Some businesses aren’t profitable (Tesla, as of when I’m writing this), but they still get money in. Their money comes from investors, in the form of loans or equity investment.
Some simple back-of-the-envelope calculations can help you understand a business. It’s most obvious in a small business. Say, a one-man business. Magician Evan Northrup and I sat down to talk about his business and how it works. He graciously allowed me to share the video. In the first half, we walk through the basic numbers of the business. In the second half, we ask how to make his product stand out from his competition.