on 02-Dec-2016 (Fri)

Most sales are not particularly complex: average deal sizes might range between $10,000 and $100,000.

The challenge here isn’t about how to make any particular sale, but how to establish a process by which a sales team of modest size can move the product to a wide audience.

Box had a good way for companies to store their data safely and accessibly in the cloud. But no one knew they needed that.

Starting with small groups of users who had the most acute file sharing problems, Box’s sales reps built relationships with more and more users in each client company.

They sold a small Box account to the Stanford Sleep Clinic, where researchers needed an easy, secure way to store experimental data logs. Today the university offers a Stanford-branded Box account to every one of its students and Stanford Hospital runs on Box.

If it had started off by trying to sell the president of the university on an enterprise-wide solution, Box would have sold nothing.

Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth. If they don’t go to law school, bright college graduates head to Wall Street precisely because they have no real plan for their careers. And once they arrive at Goldman, they find that even inside finance, everything is indefinite. It’s still optimistic—you wouldn’t play in the markets if you expected to lose—but the fundamental tenet is that the market is random; you can’t know anything specific or substantive; diversification becomes supremely important

The founders, who sold a company, don’t know what to do with it, so they give it to a large bank.

• The bankers don’t know what to do with it, so they diversify by spreading it across a portfolio of institutional investors.

• Institutional investors don’t know what to do with their managed capital, so they diversify by amassing a portfolio of stocks.

• Companies try to increase their share price by generating free cash flows. If they do, they issue dividends or buy back shares and the cycle repeats.

At no point does anyone in the chain know what to do with money in the real economy.

But in an indefinite world, people actually prefer unlimited optionality; money is more valuable than anything you could possibly do with it.

Only in a definite future is money a means to an end, not the end itself.

when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?

monopolists downplay their monopoly status to avoid scrutiny, while competitive firms strategically exaggerate their uniqueness. The differences between firms only seem small on the surface; in fact, they are enormous.

EBay also started by dominating small niche markets.

When it launched its auction marketplace, the product worked well for intense interest groups, like Beanie Baby obsessives.

Once it monopolized the Beanie Baby trade, it continued to cater to small-time hobbyists until it became the most reliable marketplace for people trading online.

Sometimes there are hidden obstacles to scaling. The auction marketplace lent itself to natural monopoly because buyers go where the sellers are and vice versa.

EBay found that the auction model works best for distinctive products like coins and stamps.

It works less well for commodity products: people don’t want to bid on pencils or Kleenex, so it’s more convenient just to buy them from Amazon.

EBay is still a valuable monopoly; it’s just smaller than people in 2004 expected it to be.

The most successful companies first dominate a specific niche and then scale to adjacent markets.

Sometimes the product itself is a kind of distribution.

ZocDoc is a company that helps people find and book medical appointments online.

The company charges doctors a few hundred dollars per month to be included in its network.

With an average deal size of just a few thousand dollars, ZocDoc needs lots of salespeople—so many that they have an internal recruiting team to do nothing but hire more.

But making personal sales to doctors doesn’t just bring in revenue; by adding doctors to the network, salespeople make the product more valuable to consumers (and more consumer users increases its appeal to doctors).

More than 5 million people already use the service each month, and if it can continue to scale its network to include a majority of practitioners.

In a perfectly competitive market, each firm is a price taker. Since each unit of output sold by a price taker is sold at the market price, the MR for each unit is also equal to the market price, i.e., P = MR.

Term	Calculation
Profit
(Economic) profit	Total revenue minus total economic cost; (TR – TC)
Revenue
Total revenue (TR)	Price times quantity (P × Q), or the sum of individual units sold times their respective prices; ∑(Pi × Qi)
Average revenue (AR)	Total revenue divided by quantity; (TR ÷ Q)
Marginal revenue (MR)	Change in total revenue divided by change in quantity; (∆TR ÷ ∆Q)
Costs
Total fixed cost (TFC)	Sum of all fixed expenses; here defined to include all opportunity costs
Total variable cost (TVC)	Sum of all variable expenses, or per unit variable cost times quantity; (per unit VC × Q)
Total costs (TC)	Total fixed cost plus total variable cost; (TFC + TVC)
Average fixed cost (AFC)	Total fixed cost divided by quantity; (TFC ÷ Q)
Average variable cost (AVC)	Total variable cost divided by quantity; (TVC ÷ Q)
Average total cost (ATC)	Total cost divided by quantity; (TC ÷ Q) or (AFC + AVC)
Marginal cost (MC)	Change in total cost divided by change in quantity; (∆TC ÷ ∆Q)