The Rule of Three

| April 23, 2014

Most new projects will cost three times more than you think, take three times as long to get to market, and generate a third less revenue than you anticipated. Lance Kalish, co-founder of Yes To, explains his Rule of Three.

My business partner Ido and I look at building a business very differently.

Ido looks at a genius idea and thinks about how excited the retailers and magazine editors will be. I look at what it’s going to cost to produce it, the likelihood of successfully delivering the product, and what the return on investment will be on the whole project.

My bottom line always involves the amount of time we spend on a product relative to the amount of return we can expect to see on it.

In other words: You could spend 80 percent of your time on Product A and make $10,000 profit, or you can spend half your time on Product B and make $30,000. What would you prefer to do?

The lesson here is focus: It’s good to try a number of things, but at a certain point you’ve got to jump on a train going in one direction and stay on it.

My background is in finance, and one of the most fundamental things that experience taught me is that even the best, most carefully considered projection is little more than an educated guess. Even though Ido is often frustrated by my pragmatism, I have to counterbalance his raw enthusiasm with realism. This is how I explained my philosophy, as handed down to me by my father, to Ido:

At some point in any new business, you’re going to have to take your projections, crumple them up into a ball, and throw them out the window.

Why? Because the majority of new projects will cost three times more than you project, take three times as long to get to market, and generate a third less revenue than you anticipated. To put it more formally:

The Kalish Rule of Three:

1.       Your costs will be three times more than anticipated

2.       It will take you three times longer to go to market than originally planned

3.       You will generate two-thirds of the revenue you originally projected

There is a good reason why more than 90 percent of start-ups fail in the first three years of doing business: This is usually due to a lack of cash flow, which multiplies the negative effects of everything else going on in your business. The Kalish Rule of Three helps you stay as conservative as possible in the beginning stages of your business. If you take your initial forecast plan for the business, apply the Kalish Rule of Three and find that the business can still survive, you know you have a strong enough business model to see you through all the inevitable bumps along the way. So you’d better be prepared, even though you may not incorporate the Rule of Three into your actual financial model.

The first six months of Yes To were extremely touch-and-go. When we first started selling to Walgreens, one of the biggest retailers in the U.S., we realised that we’d dramatically over-forecast sales, but because I’d implemented the Kalish Rule of Three, I was able to act expediently and make the critical changes we needed to ensure we would have enough leeway to fix things. After this initial period, Yes To sales accelerated, eventually exceeding our projections in a satisfying way.

I believe that you need to run through this scenario at the start of any new endeavour. Look at it as a mental exercise: What would you do and how would you survive if things were significantly slower, more expensive, and less profitable than you expected? If you don’t have an answer to this, you may need to go back to the drawing board.


This blog is an excerpt from Get Big Fast and Do More Good by Lance Kalish and Ido Leffler.

Lance Kalish co-founded Yes To in 2006 with little more than a dream and has since grown the brand into one of the biggest natural beauty brands in the world and one of the fastest growing skincare brands overall. Kalish and his partner, Ido Leffler, have accomplished it all while maintaining solid principles, investing in meaningful business relationships, giving back to the community, and still making it home in time for dinner.