Tuesday, April 3, 2007

Basic Economic Principles For Startups, Part CI

Today's post covers Opportunity Cost. This concept can be treacherous because everyone has heard of it and thinks they have a working understanding, but in reality, very few people do.

Economics was my other concentration at university and the arcane corners of the discipline deeply fascinates me to this day.

Most business-people, and people in business, conflate 'economics' and 'business' - this is a falsehood. Business is all about doing More, full stop. Economics is all about doing More, with Less.

Which brings me to Opportunity Cost. Most people have a vague idea that Opportunity Cost is roughly a $5 word for trade-offs, which is sort of right. Like many startups, Judy's Book is a solid group of smart people who work hard. Again, like many startups, there is a ton to accomplish. Every project that our development team works on is very important. Sometimes, some people call these things 'need-to-haves'. All these need-to-haves can get pretty hairy and dain bramage-y, but we know that we just have to suck it up and work extra hard to jump the trade-off curve and get it all done.

Except you can't - that project that ate up 3 people's time for a month? Well, they got some really important stuff done, but what could they have done instead? Thanks to pre-existing code libraries, developer kits, frameworks, and such - those 3 people could likely have built a whole new separate site that probably wasn't too shabby. What about that other month-long project? Maybe we could have had a third site, too. Maybe we could have accomplished something else really great, instead. All those permutations are rolled in to the Opportunity Cost.

Now, I'm not saying that we ought to have done anything differently, but I am saying that when we stop to take stock and prioritize, we ought to make sure that we deeply evaluate our priorities and long-term goals.

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