(This is the first in a two part post. Part one contains a framework for viewing the world. Part two contains resulting recommendations).
Apple’s app store taught me that living in New York City is expensive. How expensive? $1.25 an hour.
Consider that the rent for my (rather modest) Brooklyn apartment is roughly $900 a month including utilities. There are roughly 30 days in each month, so $900 / 30 days means I’m paying $30 a day and $30 spread across 24 hours in each day means I pay $1.25 an hour. Ouch. Suddenly $2.25 per subway ride doesn’t seem all that bad…
Most people I tell about Exit Strategy NYC ask “How much did it sell?” They phrase the question in past tense. This is fine for fad-like novelty apps. But for utility apps like Exit Strategy NYC the question is best phrased in the present tense: “How much does your app sell?” (Marco Arment refers to these types as two different app stores). Selling apps in the app store is an on-going business.
Apple’s app store has changed the way I look at the world. iPhone app sales figures are available each morning for the prior day. As a result, I’ve gotten in the habit of checking app sales first thing each day. But more importantly, I now view the world around me differently: it’s all about rates.
In the manufacturing world, the question is whether a product can be sold at a price and volume high enough to cover production costs. But many businesses sell products which are almost pure profit. I’m not just talking about software or service businesses. Consider your local coffee shop, bar, or video rental shop. The items they sell are almost entirely profit. In these cases, the more useful question to ask is can they sell *fast enough*?
The phrase ‘Burn Rate’ is typically applied to pre-revenue startups calculating how long the business can survive (ie their ‘runway’). But the concept is applicable to all businesses and individuals: Is money coming in faster than it’s draining? Simply put, is the bathtub filling? Or draining? (the photo is a metaphor by the way…not a picture of my $1.25/hour apartment)
Is that cool new coffee shop in your neighborhood going to succeed? Consider all the costs as rates. If their rent is approximately $3000 a month, that’s $100/day. If they have two full time employees, tack on another $100/day for each. The owner should make at least $100/day to make the business worth running. So that’s an on-going cost of $400/day.
If the main product being sold is a $2 cup of tea, unless 200 people pass through the doors each day, don’t count on that business staying around too long.
There are a number of businesses in my neighborhood (specifically places on Atlantic Avenue in Boerum Hill) that I’m afraid won’t exist much longer. Consider the perpetually empty video store. If rentals are $4 and it’s a one man business, he’s going to have to cover $200/day to stay afloat assuming he’s willing to work 7 days/week. Is he doing 50 video rentals a day? It certainly doesn’t look like it.
Businesses aren’t the only thing that should be analyzed this way. Break anything down into a micro-rate and it really makes you think about ‘value’. I pay roughly $90/month for my AT&T iPhone service, which comes to $3 a day. Do I get more than $3 of value and enjoyment out of my iPhone each day? Absolutely. Similarly, my gym costs about $75 each month. Does considering my gym subscription as a $2.50 daily expense motivate me to get my money’s worth (almost) every day? Absolutely.