18-Month Payback Rule

Noah Kagan shares his framework for evaluating new business opportunities and allocating capital from profitable businesses.

Core Investment Criteria

• Two main requirements for new projects:
  • Must make money back within 18 months
  • Must be at least a 7-figure opportunity ($1M+)

Capital Allocation Strategy

• Focus majority of money on what's currently most profitable
• Balance between short-term and long-term investments
• Example with SendFox:
  • Started lean with just 1 part-time developer and 1 GM
  • Made money back immediately due to low overhead
  • Once profitable, focused on scaling to 7-figures
  • Now targeting $100M opportunity after proving business model

Team Structure Example (SendFox)

• Small, focused team of ~6 people:
  • 2 developers
  • 1 designer
  • 1 GM (General Manager)
  • Support staff

Key Learning

• Internal debate shows focusing all resources on main business (AppSumo) likely would have reached $100M faster
• However, team acknowledges entrepreneurial drive to build new things despite optimal capital allocation strategy