The Napkin Principle

Before you build the business, make the economics face reality.

A business idea is not economically viable simply because customers like it—or even because every sale makes money.

Each transaction must leave enough behind. Enough of those transactions must realistically happen. Together, they must carry the cost of the business existing at all.

The Napkin Principle reduces that question to five pieces of simple arithmetic:

  • What will the customer pay?
  • What will one transaction cost to produce and deliver?
  • How much remains?
  • What will the business cost to operate?
  • Can enough profitable transactions realistically happen?

By the end of this exercise, you will know the number your idea must produce—and which assumptions need to face reality before you invest further.

This is a preliminary economic screen, not a complete financial forecast or a guarantee that a business is viable. See the privacy policy.

PICK MY BRAIN.

I've written about a lot of what goes into starting and building a business. The answer may already be here. If it isn't, challenge accepted.