Being involved in a startup, sometimes you need tools that are “just good enough”.  There is no reason to go out and spend hundreds of dollars on software licences so that you can be like the corporate guys – there is an open source alternative for almost every tool you might need out there.  Here is a great reference (open source alternatives) for searching for said tools.

So, Mom, if you are reading this there are two default settings changes that I want you to make to Thunderbird so that it performs in a manner similar to the accepted norm.

First, I want you to make the following change so that  when you reply to a thread, it places your reply at the top of the thread as opposed to the bottom:

Thunderbird Reply Above Quote

Step 1. Open Thunderbird and select “Tools”

Step 2. Select “Account Settings…”

Step 3. Under your email account select “Composition & Addressing”

Step 4. Under composition, make sure that “automatically quote the original message when replying ” is selected

Step 5. Most importantly, below that, change the drop down so that – Then, “start my reply above the quote” is selected.

Step 6. Click “Ok”.

While we are at it, we are going to fix another pet peeve that Thunderbird does by default which is forwarding messages as attachments instead of inline text – as a default behavior.  To make this change:

Step1. With Thunderbird open select “Tools”

Step 2. Select “Options…”

Step 3. Select “Composition”

Step 4. Change the drop down for Forward messages: to “Inline”.

Step 5. Click “Ok”.

Thunderbird Forward Messages Inline

I love you mom.

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• I’ve installed and built out 3 WordPress sites and have become quite proficient at the inner workings of WP.
• I’ve installed and built out 2 bbPress sites and have similarly become quite proficient at the inner workings of bbPress.
• I’ve integrated 2 bbPress and WordPress sites.
• I’ve styled 3 WordPress and 2 bbPress sites utilizing CSS, a language I knew NOTHING about three months ago.
• I’ve learned to leave graphic art up to graphic artists.
• I’ve learned that Google Chrome needs to develop a tool as useful as Firebug to win over the developer world.
• I’ve learned how fast Chrome is, and how slow Firefox is becoming.
• I knew IE6 was shit – nothing new there.
• I’ve styled (from a comp) a WordPress site and a bbPress site to look like one and the same.
• I’ve fixed countless WP theme bugs and while I’m not a proficient PHP developer quite yet, I’ve learned to back track to the source of the bug.
• I’ve learned the only real frustration I have with WordPress is the “open source nature” of plugins and themes and the compatibility issues with upgrades.
• I’ve learned that the quality code/hours of coding ratio is a factor of 10+X  greater with a team of 2 when compared to a team of 10.
• I’ve learned that a team of 3, maybe 4 is probably ideal.
• I’ve been reminded of how much fun it is to build something.
• I’ve been reminded of how nice it is to not visit an airport every week.
• I’ve learned that most people aren’t motivated by the end of year bonus, rather a work environment where they are appreciated and can make a difference.
• I’ve grasped how debilitating chaos, confusion, and lack of leadership can be to a company.  Luckily it’s been from an arms length.
• I’ve realized how foolish you would be to start a corporate/personal website from scratch – the blogging and CMS tools are evolved – unless you are doing it for job security purposes.
• I’ve been reminded of how easy it is to come up with great business ideas – and how hard it is to execute.
• I’ve been reminded that execution wins.

I’ve neglected this site more than I should have over the past few months, partially due to the amount of time I have spent building out other sites.  The good news is that they are approaching public release and I can soon finally start talking about them.  Amidst all of this, my business partner and I have started Praxis, LLC and are working hard on our first application, HouseFly (which will go into private beta in the next 10 days).  More on that later, this post was really just aimed at reminding myself how much I’ve enjoyed the last three months.

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What is Your Pain

Being an entrepreneur we sometimes get wrapped up in solving what we perceive to be problems that others have.  Sometimes this works, however many times entrepreneurs either don’t fully understand the problem, don’t have the domain knowledge to effectively solve the problem, or they have incorrectly identified  something as an issue that really was not.

I have talked before about the goal of an entrepreneur is getting someone to open their wallet and take out a hard earned dollar bill in exchange for a product or service.  Obviously, most people will not hand over a dollar bill unless you can provide something of value to them.  Paraphrasing a great B-School lecturer that I greatly respect:

You have to first identify someone’s pain, you then have to validate that others have the same pain, finally you go about fixing the pain in exchange for that proverbial dollar bill. – John Doggett

Adam McFarland writes one of the better blogs I’ve seen covering many practical entrepreneurial subjects, sharing real life issues and examples that he deals with in his company.  He recently wrote a great post about being your own target market.  I couldn’t agree more with this approach for an entrepreneur.  Ask yourself what some of your daily pains are, and focus on the business of fixing them.  In addition to what Adam covers, below are a few of my thoughts on the many benefits of this approach:

• Most importantly, you have first hand knowledge about the issue,
• If you are a “common Joe”, there is a very good chance that the other common Joe’s around the world have the same issue,
• Because you understand the problem so well, you know what a good solution looks like
• You know the common characteristics or interests of the other common Joe’s with the same pain, and how to reach them,
  • This is beneficial in that you can discuss the pain and possible solutions with others like you,
  • Once you have a solution or product you probably have a good idea as how to reach your market.
• As Adam suggests, because you know the pain you are a good candidate to test the functionality and quality of the solution,
• Finally, because you too have the pain, you know what you would be willing (or not willing) to pay for a solution to that problem.

So, once again, what is your pain?  I’ve spent the last few days thinking about a few of mine, stay tuned.

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I assumed that if my product could sell it for X and I could build it for Y, and X > Y, then I had it made.  At the time I didn’t give the first thought to distribution and sales, I guess I figured that would take care of itself.  It was also prior to public availability to the internet which changes the discussion, but for now we will live in the brick and mortar world.

Let’s say that you are an entreprenuer and you have developed a “better mousetrap” that you want to sell on the shelf of hardware stores across the nation.  You are able to manufacture and produce the product, but you don’t have the ability to get it in stores across the country.  So, you take your product to a wholesaler and ask them to distribute (or carry) your product.  Sounds like a great idea, what price are you going to sell it at?

Now let me ask a couple questions:

1. Presuming the wholesaler agrees to carry the product why would she be more inclined to sell your better mouse trap over the standard trap?
2. When she does sell it to the retailer (hardware stores) what is to get the store manager to place your product on the top shelf near the front of the store as opposed to the dusty bottom shelf in the back of the store?

Incentive

The answer to these questions is INCENTIVE, and in the retail world incentive is a close relative to margin.  What’s In It For Me…

The liquor industry is probably one of the more prominent industries, or the one that drives the expressions around pricing.  You’ve heard of “Top Shelf Liquor” and “Well Liquor”.  One product sits behind the bar on the top shelf in a shiny bottle for the world to see and purchase, the other product sits underneath the bar hidden away.  Similarly in the liquor store, look at the brands that sit on the top shelf versus the bottom shelf.  Additionaly look that the store displays that you see when you walk in enticing you to purchase, are they ever for the bottom shelf product?  The price, and in most cases the distributor/retailer margin vary substantially for the two different products (just because it’s a higher price doesn’t necesserily mean its a higher margin but most likely).  I’ll avoid a thorough discussion on product placement other than to say that one of the underlying themes is to place your higher margin and higher volume items in the front of the store near the cash register – as almost everyone walks by that area.

So, back to your mousetrap.  You now understand that you want your mousetrap near the front of the store on the top shelf, and you would like your wholesaler from time to time promoting your product with store displays, right?  Hopefully you answered yes, thus you must price your product accordingly so that there is incentive (margin) for your wholesaler and retailers.  Now that isn’t always easy, as there is probably a sweet spot that the product must retail at to maximize revenue, additionaly you must consider where your competition is priced at.  In Pricing, Markups, Margins and Mass Confusion I talk about how to work backwards from retail price to get to retail markup, wholesale markup, to eventually your markup.  Go in and talk to some retailers and find out what their average margin is for your competitors product and likewise do the same with the wholesaler.  It then becomes a business decisions to see if you can give them a little larger slice of the pie (and how much of a slice does it take to make a difference) to help move your product.

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I was recently talking to some local business owners about what it would take to put a product on their shelf, a product that I’ve developed and would like to take to market.  After talking to a couple businesses, working in the exact same industry, it became apparent to me that when I asked what their typical retail margins were for a product such as mine, we weren’t always speaking the same language.  I was given a few answers that were close to being in-line, and then I got a couple fliers.  So I dug deeper to determine how they calculated their “margin”, and found that “markup” and “margin” were being used interchangeably.

Why does it matter, well product pricing is a very important aspect of entrepreneurship and running a business, and probably a subject that a lot of people don’t fully understand?

That said, the concepts are actually quite simple.

• Markup is based on the cost one purchases a product for
• Margin is based on the sales price one sells the product for

The following equations are used in the examples below:

Margin (%) = (The price you sell at – The cost you buy at) / The price you sell at

The price you sell at = The cost you buy at / (100% – Margin (%))

Markup = (The price you sell at – The cost you buy at)

Markup (%) = (The price you sell at – The cost you buy at) / The cost you buy at

Markup = The cost you buy at * Markup (%)

The price you sell at = The cost you buy at + Markup

The price you sell at = (The cost you buy at * Markup (%)) + The cost you buy at

It is probably easiest to use two examples to show the concept.

Example 1.

The first is the case where you develop a new widget and want to sell it at all of the local hardware stores in the country.  Let’s assume that you are able to manufacture the item, and you will sell the widgets to a wholesaler, whom will take care of distributing your product to all the retailers across the country.

Your Pricing

Your cost to manufacture and package your widget is $10/unit.  You want this to make you rich over night, so you decide that you will sell the product to your wholesaler for $19/unit.  You have marked-up the product $9, which will cover your operating expenses and provide for a nice profit.

Your Cost = $10

Your Markup = $9

Price You Get = Wholesale Cost = Your Cost + Your Markup = $10 + $9 = $19

Markups and Margins

We can now calculate what your percentage markup and margin are:

Markup (%) = Your Markup / Your Cost = $9 / $10 = 90%

Margin (%) = Your Markup / Price You Get = $9 / $ 19 = 47.4%

We are already starting to see a markedly different set of values for terms that are sometimes used interchangeably.  If I were to ask you what your margin is and you replied 90%, that would be drastically different than the actual 47.4%.

Wholesale Pricing

Let’s continue, when you work out a deal with your distributor they tell you that they require a 25% margin to move your product.

Wholesale Cost = $19

Wholesale Margin (%) = 25%

Price Wholesale Gets = Retail Cost = Wholesale Cost / (100% – Wholesale Margin (%)) = $19 / (100% – 25%) = $25.33

From this we can now calculate the actual and percentage markup.

Wholesale Markup = Price Wholesale Gets – Wholesale Cost = $25.33 – $ 19 = $6.33

Wholesale Markup (%) = Wholesale Markup / Wholesale Cost = $6.33 / $19 = 33.3%

Retail Pricing

And finally the wholesaler is able to sell the product to the retailer.  In this industry we’ll assume that it is standard that products of this type are marked-up 50%.

Retail Cost = $25.33

Retail Markup (%) = 50%

Retail Markup = Retail Cost * Retail Markup (%) = $25.33 * 50% = $12.67

Retail Price = Retail Cost + Retail Markup = $25.33 + $12.67 = $38

So we can now determine the Retail Margin.

Retail Margin (%) = Retail Markup / Retail Price = $12.67 / $38 = 33.3%

In summary, the product that you developed for $10, after your markup, wholesale markup and retail markup is now selling at hardware stores for $38.

Example 2.

Now, lets work backwards.  You have developed your new widget and you know that your competitions product retails for $23 in hardware stores.  You know yours is slightly better, but will not be able to sell for $38.  You are pretty sure that your product will sell for $27.

Squeezing Margins

We’ll assume that (the same as in example 1):

Retail Margin (%) = 33.3%

Wholesale Margin (%) = 25%

Retail Pricing

So, if the suggested retail price of the item is $27, then:

Retail Markup = Retail Price * Retail Margin (%) = $27 * 33.3% = $9

Retail Cost = Wholesale Price = Retail Price – Retail Markup = $27 – $9 = $18

Wholesale Pricing

Now to determine the wholesale markup and cost:

Wholesale Price = $18

Wholesale Markup = Wholesale Price * Wholesale Margin (%) = $18 * 25% = $4.50

Wholesale Cost = Your Price = Wholesale Price – Wholesale markup = $18 – $4.50 = 13.50

Your Pricing

In this scenario, it costs you $10 to produce your widget and you are only able to sell it to wholesale for $13.50.

Your Margin (%) = Your Markup / Your Price = $3.50 / $13.50 = 25.9%

This is substantially less than the 47.4% margin that you received in the first example, but you can see how it allows you to make a business decision.  If the product must sell for $27, it costs you $10 to produce, then you have to decide if a 25.9% margin per widget is acceptable to pursue the opportunity, remember that the 25.9% must cover your operating expenses, marketing, with something left over in the form of profit.

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It is perplexing to me how Apple could allow the most advanced phone in the world – dating back for a couple years now – to still not have a feature as common as MMS.  Much like the Google Voice Issue that AT&T has perpetuated we sit today with an iPhone that can not send media via text messages.  MMS is not exactly a new technology, first used in 2002.  I see a few enterprising individuals have built morse code applications for the iPhone – that should be right down AT&T’s sweet spot?  Here’s an entreprenuerial idea.  An iPhone Application that takes an image, renders it into ASCII art, so that it can be text messaged on the iPhone.  I presume AT&T can handle this?

                              |\
                              | |
                              | |
                              | |
                              | |
                ))))))))      | |
              ((((    \       | |
               \\\.=<#-<#     | |
                \C     7      | |
  ,              \    -)      | |
  \\__         __.) (.__      | |
   \\\\ _    /'         `\    | |
    \_ '/   /  ,       .  \   | |
      \ \  /  /| '   ' |\  \  | |
       \ \/  / |       | \  \ | |
        \  /'  |       |  `\ \| |
         `'    |       |    \ | |
               |   .   |     \| |
               >-------<      | |\
              [~~~~~~~~~]     | | )
              [    L    ]     | \/
              [    |    ]     | |
              [____|____]     | |
               | /   \ |      | |
               ()     ()      | |
               ||     ||      | |-._
               ||     ||      | |_  `.
          jgs  )(     )(      | | `-. `.
              /==\   /==\     | |    `.;
             ooooO} {Ooooo    | |      `
             ~^^^~   ~^^^~    |/ ascii art

Should I not expect more from the American Telephone & Telegraph Company – my monthly bill would make me think so?

Remedy Alas?

The end of summer is approaching quickly and as sure as fall will bring color to the leaves, will AT&T finally be ready to flip their switch, thus turning basic functionality on to the iPhone in the US?  Hopefully Apple will release in conjunction OS 3.1, leaving me only Google Voice and Total Cost of Ownership to complain about?

In the meantime, I’m going to start researching this ascii art converter idea…

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Goal of an Entrepreneur

I was recently reading an article entitled “What makes an entrepreneur?” and it got me to thinking, what does make an entrepreneur?  I see what Brandon is getting at in his article, but I would suggest that it really addresses, “what an entrepreneur makes”.  The seven points suggested would certainly be desired outcomes of starting a new venture, but what qualities, traits, or resources, does it take – or not take – to be an entrepreneur and actually start that new venture?

Entrepreneurs come in many shapes and sizes, but there is a stereotype that exists.  Some of these might include small business owner, risk taker, male, self-motivated, passionate, etc.  And ones stereotype might be influenced by the era that they grew up in.  I knew a kid growing up that was building websites in high school for local businesses, so in my mind he was an entrepreneur.  My father’s era might however think of entrepreneurs as Midwest farmers and ranchers, hardware store owners, or a gas station owner.

I’ll start by listing a few things that I believe entrepreneurs are not:

• Risk Takers – While it could be argued that certain aspects of entrepreneurship is riskier than taking a job with a fortune 500 company from a financial or stability standpoint, entrepreneurs are no more likely to gamble or take a chance than anyone else.  Successful entrepreneurs do a lot of analysis, research, and many times have years of experience in the industry prior to engaging in a venture.
• A Certain Gender – Male or female, there are no limits as an entrepreneur.
• A Certain Education – Many of the most successful entrepreneurs have little formal post secondary education, see Gates, Dell, or Ellison.  But for every of those, there is a Page,  Buffett, or Bloomberg who have a great deal of education.
• A Certain Age –  Again, there are no limits on age.  Warren Buffet got his start as a freshman in high school when he and a friend purchased a used pinball machine.  Sylvia Lieberman, on the other hand, got her start at the age of 90 when she had her first children’s book published.
• Dreamers (in an of itself) – Having an idea or dream doesn’t make you an entrepreneur.  A dream without the ability to execute is worthless.

There are certain traits that many entrepreneurs do share – though I’m sure there are examples on the contrary:

• Passion for their Product or Service – Many times the entrepreneurs that I see have a great deal of pride and passion for what they do.  This isn’t unique to entrepreneurs, but many times a trait linked to successful people.  They find and do what they are passionate about.
• Hard Working – There are people that just knock it out of the park and the idea takes off by itself.  Word has it that PlentyofFish founder Markus Frind at times only had to dedicate a couple hours a day to his company as it grew – that said I’m by no means accusing him of not being a hard worker.  He put the community that he built to work, thus reducing his involvement once his product was built.  The vast majority of entrepreneurs don’t have A+ ideas and execution, and thus have to work hard at their new ventures.
• Stick-to-itiveness – Most entrepreneurs face a few major hurdles (if not daily) on the way to building a successful company.  Herb Kelleher and Rollin King didn’t let a three year legal battle stop them from getting Southwest Airlines off the ground.   Most entrepreneurs are not easily deterred, in the vast majority of cases somebody else already has had your original idea, either they didn’t pursue it, or you need to find a way to do it better.
• Smart - While I mentioned that entrepreneurs may have any wide array of education, in most cases they are very smart.  They have a great deal of common sense, domain knowledge, and are savvy enough to turn an idea into a dollar bill.
• Eyes open to Possibility / Dream-weavers – Above I mentioned that entrepreneurs are not dreamers, but they are dream-weavers.  Maybe I’m being to literal, but I like to think that successful entrepreneurs are always thinking about and analyzing possibilities.  Those possibilities might include original ideas, the difference being that good entrepreneurs go after their ventures having properly planned and analyzed the opportunity.  Once they have a sustainable opportunity, they must develop the dream, and sell it to others.
• The ability to sell – Quite possibly the most important saved for last.  An entrepreneur must have the ability to sell a concept, sell the dream, or sell the product.  Paraphrasing John Doggett, a legendary business lecturer at the University of Texas:

The ultimate goal of an entrepreneur is to get someone to open their wallet, take out hard-earned cash, and hand it over to you.

That is usually harder than it sounds, and without it, most ventures will not go far.

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What I have learned to do is to back into my revenue calculation, using a worst case scenario analysis.  I start by building a spreadsheet that has all of my revenue drivers – assumptions used to derive the revenue calculations.  I then build out an income statement, once again, using the revenue drivers to calculate the top line of the income statement.  Finally I build a cashflow statement that ties to the income statement in a couple ways, but primarily via the net income.

When doing a traditional business analysis, it’s easy to get wowed by the “estimated return”.  Some folks will do a sensitivity analysis on the estimated revenues, maybe the estimated expenses, and come up with equally wow’ing returns which do nothing more than distract you from the real question at hand – is this opportunity viable.  As I’ve mentioned, the problem is that while guestimating expenses and start-up captial requirements can be done with relatively fair accuracy, in many business plans doing the same for revenue isn’t possible.  That’s why this approach is so valuable.

So, once you have your revenue assumption sheet linked to your income statement and likewise linked to your cashflow statement, you can start the process of backing into revenue.  On the income statement, you can start by putting in reasonable expectations for expenses, taxs, etc.  On the cashflow statement, you probably have a reasonable idea of how much start-up capital you have access to, or will need to operate the company prior to having a stable revenue stream.  In addition, based on the net cashflow you can do some simple hurdle rate calculations such as net present value (NPV) or internal rate of return (IRR).

Once all of those things are set, then go back to the revenue assumption page and start entering assumptions until you get to a point where the business plan is just able to get by.  The spot where, “if at a bare minimum we are able to do this revenue, we can keep our doors open for business”.  This is really the make or break revenue of the company assuming that your access to start-up captial is limited to some ceiling.  At this point, you can now step back and take a holistic view of the revenue assumptions and projections and focus on the companies ability to meet those revenues.  The question then becomes about “can we make this revenue, or not?”.  Hey, if the company actually does 2x your assumptions down the road, congratulations, it’s a good problem to have!  But in your analysis, assume worst case, and back into the minimum revenue that you can derive to have a operable company (or opportunity you are willing to invest in), and if you have confidence that your company can meet those minimum requirements, you might have a winner.

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Where it’s not so easy is around sales and estimating revenue.  The level of complexity around this estimation is dependent upon the nature of the business plan.  As an example, if you are writing a business plan for a new hotel that you want to build or purchase, it might be a little easier because your business by nature is bounded.  If I build a hotel that has an occupancy of 100 rooms, I can safely estimate that my revenue is going to be a factor of the occupancy rate (between 0 – 100%) for any given day.  A difference of 60% occupancy versus 70% occupancy might make or break a business opportunity, but at the end of the day, it’s basically a 10% difference in revenue over that period.  There are some methods to try to fine tune your estaimates, probably the most useful is comparables (often referred to as “comps”).  You can go to neighboring hotels and count cars in the parking lot to determine your competitions nightly occupancy.  You will likely not get the same occupancy the day you open, but your business plan can start to become more realistic when you have that type of data at your disposal.

Now look at what the internet has done for us.  A web based business plan is open for business 24 hours per day, 7 days per week.  It’s open in literally every region and country of the world.  It is not limited by only having 100 rooms of occupancy.  I always hear the guy that invented the pet rock is a millionaire.  I don’t know if it’s true or not, but lets say that when he invented it he had the internet at his disposal.  The inventor creates a web site, puts a picture of his pet rocks on the site for the world to see, and puts an order form on the site so that anyone in the world can order his pet rocks.

There are a number of unknowns with the pet rock business plan.  What is the size of the market, are all 6.7 billion people on this earth your market?  Probably not, only about 24% of the world’s population has access to the internet.  And what percentage of those internet users will ever see your site, not many?  Once on your site, what percentage will actually go about filling out the form and paying for the pet rock?  You see where I’m going, you end up with click through rates times conversion rates times other rates I haven’t even mentioned – a myriad of compounded rates.  What you end up with is a revenue estimate that is very sensitive, a conversion rate on your website of 2% versus 3% might make or break your business plan and mean the difference in millions of dollars of revenue.  There are industry standards that you can lean on, but in the end you have to use your gut feel for what washes out to be some sort of revenue estimate.

My advice to people is to ask themselves, does this revenue model feel right in my gut.  Does the revenue make sense, does it grow smoothly or are there huge spikes?  Is it conservative, did you back into the revenue?  If you are comfortable with those things, then it’s likely that your business plan is realistic and hopefully will have legs.

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I see it time and time again – many times from people making major financial decisions for their company.  Some will argue that it is a bug in Excel, and according to some articles I’ve read the behavior is different between different versions of Excel, I don’t know if that is the case or not.  My argument is that people should understand the concept prior to blindly using the formula – and perhaps some clearer user instructions from the software providers.

What am I talking about?  Improper use of the NPV (net present value) formula in Excel and OpenOffice.

Net Present Value is the comparison of a dollar today versus the value of a dollar in the future.  Presumably if someone offered to give you a dollar today, or a year from now, you would pick today.  If I were given a dollar today, I could invest it at some interest rate and one year from now I would have a dollar and change.  That obviously has more value than being given a dollar a year from now – the difference being the change.  NPV is one of the primary analysis tools for valuing business opportunities.  Those decisions might include plant expansion projects, purchase of a new company, etc.  At the end of the day companies and entrepreneurs typically spend money today to make money in the future and NPV takes those expenditures (cash outflow) and profits (cash inflow) and gives you the “net value of the opportunity”, in today’s dollars accounting for inflation and returns in a discount rate.  Now, it is important to note that without a crystal ball, future cash flow from an investment is typically based on estimation, but that’s a different discussion.

What should be understood about the NPV formula in Excel and OpenOffice is that it gives the net present value of FUTURE cash flow.  If you include time 0 (today) cash flow you are improperly discounting the value of today’s dollar.  The net present value of a dollar today, is a dollar.

See the example below.  This particular example was done using OpenOffice, but you will get the exact same result using Excel.

NPV Calculation in OpenOffice

What you see is a series of cash flows, a year 0 (today) cash outflow of $1M, and then a series of outflows and inflows ending in year 7 with an inflow of $1M.  For the sake of this example, a discount rate of 10% will be used.

There are two results shown below the cash flow series, the top NPV result ($175,653) being incorrect and the source of many mistakes that I see from time to time.  The bottom result ($193,218) is the proper calculation for the NPV of this cash flow.  The mistake, which in this case causes for an understatement of the value of the investment, is caused because the cash flow series is being treated as if it were all in the future – and that is not the case.

The proper use of the equation when calculating an NPV on a series of cash flows is shown on the bottom result, ending in a NPV of $193,218.  The NPV formula, when used properly, should include the range of FUTURE cash flow, and that result should be added to the time 0 (today) investment.

Happy NVP analysis!

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