The Bicycle

When someone asks me in a masterclass how a business actually works, I don’t start with their business. I start with a girl selling ice cream by a lake.

Call her Mira. She is eleven, and she wants a bicycle. The bicycle costs €500.

That is the whole apparatus: one goal, one borrowed cooler, one spot on the path along the water. No software, no dashboard, nobody to explain the month to her afterward. She has four things — the price she charges, the number she sells, the costs she carries, and the weather, which she gets no vote on.

I don’t start there to be charming. I start there because it is honest. A decision you cannot justify at an ice cream stand does not become justified by forty slides. It only becomes harder to see.

Day one

Her parents buy the first hundred ice creams and lend her the cooler. Seed capital and equipment — no contract, no interest, no equity. By the lake that arrangement is called Mom and Dad.

Mira pays €0.50 an ice cream and sells it for €1. She works ten hours on the shore. When she packs up, the box is empty: 100 sold.

Run the numbers yourself before you read on. What did the day make?

The two numbers everyone mixes up

100 ice creams at €1 makes €100. That is her revenueRevenue is the money that comes in before anything gets subtracted — 100 ice creams at €1 each is €100 in revenue. It tells you how much business happened, not whether the day was worth it. full card figure for day one — the number that tells the best story and carries the least information.

Those hundred ice creams cost her €50 to buy. That is her COGSCOGS — cost of goods sold — is the money each ice cream costs you before you've sold it: €0.50 a piece. That cost is fixed whether the ice cream gets sold or melts in the box. full card number, locked in as soon as she fills the box, and it does not care whether an ice cream gets sold or melts in the sun.

€100 minus €50 leaves €50. That is the gross profitGross profit is revenue minus the cost of goods, before wages or anything else enters the picture. At a €1 price and a €0.50 buy-in, that's €0.50 of gross profit per ice cream — not yet the profit, but the first honest checkpoint. full card line for the day.

And because nobody drew a wage that day, the same €50 is her profitProfit is what's left once the cost of goods and wages come off revenue — the only figure that's actually hers to keep. Sell 100 ice creams at €1 each on a 10-hour day, and €50 in stock leaves €50 in profit — and that day nobody drew a wage. Count her own ten hours and it comes to zero. full card number as well. Today those two are the same figure. Remember that sentence — it holds for exactly one day.

Revenue tells you how much activity there was. Profit tells you whether the activity was worth having.

Confusing the two is the most common misunderstanding in business, and it does not shrink as the numbers grow. It just gets more expensive. A company can double its revenue and end the year with less in hand than before. Nobody has to lie for that to happen. Looking at the wrong number is enough.

Nine more days?

She wants €500. She has €50. That leaves €450, and at €50 a day, nine more days.

It feels like a plan. It is a forecast built on a single data point. For it to hold, all nine days have to look like this one: same weather, same day of the week, same crowd on the shore, same Mira. And nobody can get paid.

That does not make the arithmetic worthless — quite the opposite. Without the bicycle, €50 is just €50. With the bicycle, €50 is one tenth of a bicycle, and the interesting question stops being “what did I earn” and turns into “how do I get there faster.” A goal is what turns a number into a decision.

Tools change

Now swap the nouns. The ice cream becomes a software license. The €0.50 buy-in becomes what one won customer costs you to serve. The borrowed cooler becomes the infrastructure that was already there and therefore shows up in nobody’s math. The second person behind the table becomes the role that has been open for four months. The bicycle becomes the number in the business plan.

The arithmetic does not change. The number of zeros changes, and the suit it gets done in.

Which is why I start a level earlier than most people expect. Before lunch it reliably irritates the room:

“At first I thought we had ended up in a philosophy seminar …” — a participant in a masterclass

By the afternoon that same room is running the numbers on its own case, and nobody asks which tool to use anymore.

Tools change. Models stay.

Your seat on the board

In my trainings, the participants are this young CEO’s advisory board. They advise, they decide, and one episode later they live with the result. Here, that seat is yours.

Mira has one good day behind her and a goal that is taking too long.

She wants to get there faster. What do you advise?

Answer it before you read on. In Episode 2 she does what her board told her — and by evening there is a number on the table that nobody expected.