Business is a Game of statistics. Fact is, most people jump straight into business without first calculating the risks-rewards ratio. Passion doesn’t feed you and reality strikes as it is.
If you ever want to succeed in business, the very first thing is to learn how to plan your business. Understanding the cost, projections and intended gains are crucial to making the critical financial decisions to your business. Of course, an exact figure can never be determined till the day you opened for business, however, hedging your future simply on even the brightest idea can lead to a business downfall.
In our coffee shop example, John will need to sell 267 cups of coffee per day just to settle his running cost and sustain the business. In order for John to cover his start up capital and start making money, he will need to sell at least 300 cups of coffee everyday at least for the next 2.2 years of his life.
What I’m trying to share here is not telling you how you calculate your risk and scare you away from doing your business. What I’m trying to show you here is the benchmark. For the example in 1, John probably won’t be able to sell 300 cups of coffee consistently per day. Its just not possible. John will need to determine out of 30 days, how many days will he be able to get >$300/day of earnings?
If john manages to sell 300 cups of coffee for the day, he will get 1 success point. If he can’t, he will get 1 failure point. So, what are the odds?
Say, if John gives himself a 90 day period, how many days of success will he have compared to failures. If Failures>Success, does he still want to continue? Naturally, John could lengthen the timeframe to lower his capacity to absorb a lower odd, but how much. This will depends on the individual tolerance level.
Your odds determine your business future. Statistics come into play to deal with the volatility of uncertainties in the market. By understanding statistics, you gain a better hold over your business future and are better equipped to know if your business is set for a downfall or growth in the future.