Knowing the differences between cost, value, sunk costs and opportunity costs is vital to helping you make great financial decisions now and in the future. It’s a very common fallacy that the amount spent on product development means that product is worth what was spent.
For example, if you step on a snooty person’s shoes, he may say something like “you just stepped on my fancy shoes. Those are worth $1,800!” What they mean is they paid $1,800. That doesn’t mean they’re worth $1,800. Or you may have paid $20,000 for a new car, but the moment you drove it off the lot, it’s value decreased to $18,000 and decreases every month, whether you drive it or not.
This same mindset comes into play for entrepreneurs. A founder may say, “I spent $500,000 to build my company, so I won’t sell it for less.” Well, just because you spent that much, doesn’t mean it’s worth that. If you build something people don’t want, it may be worth nothing. Cost and value are completely different things.
In this episode I discuss cost. In addition, I talk about subscription businesses, why they’re great and how the increase firm value.
0:00 – Cost vs. Value
1:36 – Sunk cost vs. Opportunity cost
3:00 – Plan the milestones before starting
4:15 – Hunting vs. farming (subscriptions vs. launching)
7:10 – Benefits of a subscription business
7:50 – Subscriptions increase firm value