I love to dig through Jason Cohen’s (CTO WP Engine) posts and look what I found – The Fermi estimation for Startup business models. This is an interesting and quick method to figure if your estimates have any legs at all. So what is Fermi’s Problem? Wikipedia says “ The estimation technique is named after physicist Enrico Fermi as he was known for his ability to make good approximate calculations with little or no actual data. Fermi’s problem typically involve making justified guesses about quantities and their variance or lower and upper bounds.”
Jason does this back of the envelop calculation for a Startup looking for a 1mn ARR quickly eliminating options to get to that number through traditional routes like Adwords and Social and reaches a bunch of possibilities. The important thing is to be able to quickly get to your estimates of revenue and eliminate those that do not add up. So you can now focus on the ones that might. Or work on new models.
The article is entertaining and educative. Give it a go.
One takeaway – you are better off addressing a TAM with 100m potential users than 1m, even if your goal is to get to a 1m ARR with $50/user/month run rate or 1666 paying customers. It is harder than you think.
Where I learnt it #238
Fermi estimation for startup business models https://blog.asmartbear.com/fermi-estimation.html
