Millionaire Math: Why "Follow Your Passion" is Bad Advice

This episode reveals a counterintuitive mathematical approach to starting and structuring a business to maximize profitability and achieve your ideal income goals without outside funding.

Summary:

Most entrepreneurs start businesses backwards - they have a passion or idea first, then create a product, and finally wonder why they fail to reach their income goals. This episode explores a backwards approach focused first on the math to set up any business for profitability.

The key is first defining your target annual net income. Next choose a reasonable net profit margin - ideally 30% or more. Then calculate the revenue required to hit your income target based on your profit margin. For example, $1M in desired net profit with a 10% margin means you need $10M in revenue.

The next step is determining how many products you need to sell at what price point to reach that revenue number. You simply move the decimal point to find your sweet spot balancing number of sales and price. The final step is identifying a suitable business model, products and target market that can support your ideal math.

The typical approach is to have a product passion first, then identify customers. By doing the math in reverse, you start with your income goals, profitability needs and required math, and then build or shift your business model accordingly. This backward approach sets you up for success. Most entrepreneurs act before doing the math, and as a result build businesses doomed to fail at generating the income they expected. Doing the basic profit math ahead of time virtually guarantees you can reach your financial and lifestyle goals through your business.

Top 3 Growth Tips:

• [4:25] Do the basic profit math FIRST before starting any business - define your ideal annual income, profit margin and required revenue.
• [11:36] Let your income goals and required math determine your business model, not the other way around.
• [10:28] Be willing to adapt your existing business model if needed to align with your ideal financial math.

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About Ken Ott:

Kenneth Ott is an owner of multiple businesses, entrepreneur, husband, father, and Christian leader. Ken is the co-Founder of Metacake, an Ecommerce Growth Team and Dough Capital. Ken is an author, speaker, and business coach. To connect or learn more, visit: 

• KenOtt.com
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• Ken on Instagram
• Ken on Facebook
• Metacake - An Ecommerce Growth Team
• Dough - We own amazing DTC brands
  
  

Show Highlights:

• [00:31] Most entrepreneurs look for complex solutions without first doing basic profitable math.
• [02:15] This episode reveals a backwards approach - starting with your income goals and working backwards to the required math and business model.
• [04:25] Step 1 - Define your target annual net income.
• [04:58] Step 2 - Choose a reasonable net profit margin - 30% or more ideally.
• [05:50] Step 3 - Calculate the total revenue required to hit your income goals based on the profit margin.
• [06:04] Most entrepreneurs skip doing this basic math first before launching their business.
• [07:11] Step 4 - Determine number of sales and price point to reach your revenue target.
• [08:53] Step 5 - Identify a suitable business model, products and market to support your math.
• [10:28] Be willing to adjust an existing business model to align with your profitability math.
• [11:01] A business aligned with your math gives energy, versus drudgery otherwise.
• [11:36] Let your income goals determine business model options, not the other way around.