What is Chinese math?

Filed in archive Entrepreneurship on May 10, 2006

Rob at Businesspundit teaches me a new expression - Chinese math. Here is what it is:

"I've written about this before, but it is so damn pervasive among entrepreneurs maybe I need to be more thorough. Let's start by explaining the term (which comes in several forms, but 'chinese math' is most common around here). Investors love companies that can a)stand on their own two feet early so that they don't require much more investment and b)have huge market potential. So entrepreneurs try to convince investors that the market is huge, and in doing so they somehow convince themselves (and in turn try to convince investors) that it will be easy to reach cash flow breakeven because of the market size. After all, they only need a small percentage of the market. The name stems from the idea that there are a billion people in China, so if you sell a $1 widget to just 1% of them that is $10 million in revenue. The assumption that is incorrectly applied here is that 1% is easy to get because it is a small number."

Nothing new here - the 1% thinking has been dissed by Guy kawasaki in full length but interesting expression.