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vgr's profile
Venkatesh Rao
Venkatesh Rao
Venkatesh Rao
@vgr

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Venkatesh Rao

@vgr

Conversational account. For work follow @ribbonfarm, @breaking_smart, @artofgig. Tweets are 90% vacuous views, apathetically held. Mediocritopian. IKEA builder.

Los Angeles, CA
venkateshrao.com
Joined August 2007

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    1. Venkatesh Rao‏ @vgr Feb 23
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      Doing NPV calculations on time investments seems wrong. Should you spend $5000 now for 7 years of $1000/y cash flow, given a discount rate of 5%? Yep, $5786 NPV. Should you spend 100 idle hours on it? That’s $57.86/h discounted future income. But feels wrong to think that way.

      3 replies 2 retweets 13 likes
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    2. Venkatesh Rao‏ @vgr Feb 23
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      The temptation is to use (bill rate * load factor) as opp cost. So if you charge $100 and sell 1000 of 2000 hour work-year time inventory (50 weeks * 40 hours), that’s a $50/hr opp cost. But if you can’t sell those idle hours the opp cost is value of 1 hour leisure 🤔

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    3. Venkatesh Rao‏ @vgr Feb 23
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      The math is easier with elastic demand. Your value of leisure is where working an extra hour by lowering your price feels not worth it. So if you could make $40/hr for 1300h instead of $50/hr for 1000h, but choose not to, clearly you value marginal leisure hours between $40-50

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    4. Venkatesh Rao‏ @vgr Feb 23
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      Problem is, most people can’t just lower or raise their prices arbitrarily and expect demand to shift smoothly. Unless they do pure commodity work in near perfect competition markets like rideshare.

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    5. Venkatesh Rao‏ @vgr Feb 23
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      Ah I think I see the problem. Time investment is also future time commitment in maintenance *if* the cash flow materializes. Your 100h is just the upfront time. You’re commiting more future time that’s hard to estimate

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      Venkatesh Rao‏ @vgr Feb 23
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      So 100h spent developing day a teachable course is also ~2-10h/y maintaining it to realize the future cash flow. So you have to discount more steeply if you think you’ll drop the ball.

      12:07 PM - 23 Feb 2020
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      • Alex Wagner ☃️A Thousand Merry F**kin Plateaus🎄
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        2. Venkatesh Rao‏ @vgr Feb 23
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          Also, you should model a scenario that you’ll kill a project *even* if it succeeds because you get bored, a better opp comes along etc. Best not to average this into 1 scenario. Q to ask is what would someone have to pay you to *quit* a long-term project at any point? Kill cost.

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        3. Venkatesh Rao‏ @vgr Feb 23
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          A robust time investment is one that would have a very high kill cost under success. This is why if an activity doubles as leisure (so leisure opp cost is zero), it’s very hard to kill.

          0 replies 0 retweets 12 likes
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        4. End of conversation

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