What is a 'Back Of The Napkin Business Model'

A back of the napkin business model is a simple, informal plan which includes basic ideas and components, but lacks any fine details. The plan outlines only the core ideas and success factors of the business. The term comes from the idea that a quick outline of a business can be easily drawn on the back of a napkin to demonstrate its fundamental concepts.

BREAKING DOWN 'Back Of The Napkin Business Model'

The back of the napkin business model outlines the very basic ideas and concepts, but will typically leave out many of the finer details. Consider this type of plan more of a bigger picture scenario of what the business or concept will entail. It will include ways in which the plan will be monetized, but almost always excludes a budget and other significant information.

Quick, Give Me a Napkin!

Since ideas come up at any given time, some entrepreneurs will use any area on which to jot down their ideas, including napkins. The term was adopted using the scenario in which someone pitches an idea to a potential investor over coffee, dinner or a drink. The person pitching the idea quickly sketches the business model on the back of a napkin to demonstrate the feasibility of the business.

But the ideas do not necessarily have to be in writing. Some entrepreneurs sketch out some of their plans with doodles, charts, and other visual aids. 

Back of the Napkin: Just an Outline

It is really important to stress that this type of plan should only be used as part of the initial stages of planning, or when pitching the idea to a potential investor. Once all of the general terms of the plan have been noted down, the next (and most logical) step would be to draw up a final and complete business model. This should include any and all details pertaining to the operations of the business, as well as any short- and long-term visions. 

What to Put on Your Back of the Napkin Plan

When you're devising your raw, rough plan, you may want to consider putting in a few key points. Having these down on paper may help you brainstorm and smooth out the finer details later on down the line. Someone who is in the initial planning stages may want to think about the target market for the business, the kinds of products and services the business will deliver and, perhaps, some of the key expenses.

Real Life Examples of Back of the Napkin Business Models and Plans

David Shepard, who invented the optimal card reader, found that the ink on people's credit cards was being smudged whenever they were used at gas pumps. So, he came up with a workaround. He invented a font that would be printed on credit cards — the Farrington B — which was first drawn on a napkin at the Waldorf Astoria in New York City in 1952. That same font is still being used today. 

In 1974, economist Arthur Laffer demonstrated his argument that higher taxation would lead to a drop in government revenue with a graph drawn on a napkin during a dinner with Dick Cheney and Donald Rumsfeld. That curve, named the Laffer Curve, became a way to justify then President Ronald Reagan's trickle-down economic policies.

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