Name: Imaginary numbers.
Aka: Funny Money, Top Down Analysis
An over simplistic – and usually false – idea that if a large number of people bought a product or paid a fee then the deal in question would be incredibly valuable. “If everyone with an iPhone pays us $0.99 for this app,we'll all get rich.”
This is a value manipulator, closely tied to Big Story. It is designed to make you so optimistic (greedy) that you overvalue his assets and stop doing proper due-diligence.
Always starts off sounding collaborative, but like most attempts at deception and misdirection, it ends up being competitive.
Imaginary numbers are integral to Big Story and other value manipulators.
Even if you don’t believe him, you have to be careful mounting a head-on challenge here if you want to avoid a conflict. You are better off working with a contingency compensation plan based on his inflated claim. In other words, if he says the service is going to earn ten million dollars, then work out a valuation rewards high sales but gives you a way out if things don’t turn out that way. You might look for guaranteed sales, easy-out clauses, or ability to return unsold merchandise (where appropriate). You can also make further collaboration contingent on certain targets: you’ll give him exclusivity for all of North America – if profits hit a certain range by a certain date.
WARNING: This might be part of an elaborate fraud – or the guy may just be genuinely excited about his product or idea. Be gentle.
The key to this tactic is that it starts with a kernel of truth, but then spins it into a crazy story. A familiar version of this one was, “if every person in China bought one can of coca cola per month, the Dow Jones would double!”
This is the problem with “top down analysis”. You know how much it costs to make a product, and then you just extrapolate based on the size of a population. The catch is that there is a BIG difference between population and market. “Population” is the number of people living in an area. “Market” is the people who will actually buy. They’re different.
Defense: Let him talk, then research, and finally come up with contingent compensation plan.
- Don’t outwit yourself. Sometimes Imaginary Numbers are part of a scam – but it could also be sincere enthusiasm. Let him talk, hear him out, and keep the conversation going as long as he is giving you useful information. Take part, and guide the conversation where you want it to go.
- Once he lays out the basic value proposition, do the analysis and determine if his argument makes sense. Don’t rely on his data.
- A good “imaginary numbers” ploy is really a trap that you can turn on him. If he says “a million” then you take that as a guarantee and start setting his compensation for the next million.