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And printers, routers, modems, ad infinitum (if you can t buy a lot of toys, what s the point, right ) Whatever you might have paid to outside programmers to write your product, if you didn t do it all yourself Fixed costs are expenses you would, and WILL, incur before you make your first sale, and bills you will continue to pay even if you never sell a single copy. And now, where the rubber meets the road, your raison d tre: Profit: Profit is what s left over after you subtract all expenses from total revenues. There are two other definitions you need: Gross margin: Gross margin is revenues minus variable costs. It s usually expressed as a percent. If you express it in dollar terms (that is, selling price minus variable costs) it s called gross profit. Net margin: Profit expressed as a percent of total revenues. Expressed in dollar terms, it s called net profit. Why are these terms important You may never have a need to actually calculate your margins, although your best-guess projections are important during the planning phase of your business just to make sure you re not setting up an obvious money loser. These basic ideas are important to help you visualize your nascent business. So now that we have a common language, we can use it to discuss pricing your product.

As soon as he said it was OK to do engineering, that really freed me up My psychological block was really that I didn t want to start a company Because I was just afraid In business and politics, I wasn t going to be a real strong participant I wasn t going to tell other people how to do things I wasn t going to run things ever in my life I was a non-political person and I was a very non-forceful person It dated back to a lot of things that happened during the Vietnam War But I just couldn t run a company But then one person said I could be an engineer That was all I needed to know, that OK, I ll start this company and I ll just be an engineer.

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To this day, I m still on the org chart, on the bottom of the org chart never once been anything but an engineer who works..

Columbia. And he said, We try to make the right judgments and we don t always. I m glad that I did not dissuade you from continuing on with its development. I thought that was a very nice thing to say.

The software business is somewhat unique among product-based businesses in that variable costs are so very low. So gross margins are very high. When a computer manufacturer sells a computer to a distributor for $500, they might have $300 of variable costs parts and labor in that box. So they have a gross margin of 40 percent. Healthy. But, when they spread their fixed costs over the number of computers they sell, that might add another $100 to the total expenses, giving them a net profit of $100 or a net margin of 20 percent. That s pretty good. Grocery chains average net margins of around 2.5 percent. Tough business. Other computer manufacturers making competing products are likely to have similar costs. So they will also be selling their machines for about $500.

Livingston: So you leave Catapult and say, I m just going to tinker around and see what happens Perlman: Netscape 10 comes out I get it working, and I said, Wow, this is really great, because people are putting up websites that anybody can go to I went to campbellsoupcom, and there was a Campbell s soup can and recipes It was the early days of the Web, so there wasn t too much, but I thought, The kind of people that would be interested in these recipes probably aren t using computers and connecting to the Web Remember, this is before a lot of people got computers in order to get email and be on the Web And then I thought, This could be the thing I need to break that chicken-and-egg problem.

Because if I can get these pages that were really designed for PC screens to work on a television screen, then It s not ideal content; a lot of it is stuff really suited for someone on a PC But some of it, like this Campbell s soup site and there were many other sites, music sites and all that is suited for the casual television entertainment experience That might be enough to bootstrap us so we could do what I really want to do, which is these richer what we now call broadband interactive experiences Things like DVR and so forth Before Apple, I was at Atari and Coleco I designed video game systems there, and I knew an awful lot about how to create a very high-resolution image on a television screen by doing special image processing.

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