Great read. I knew as soon as I saw EBITDA that Amazon would be used as an example, but the savings for prepaying for beef blew me away.
Games People Play with Cash Flow (2020)
61–70 of 91 posts
Re: Games People Play with Cash Flow (2020)
#62Every time I read one of these “thinking doesn’t work” blog posts I come away thinking “omg, these people just have no idea how hard it is to think”. IMHO the only situation you should be allowed to draw axioms and propositions like little balls with arrows between them is if you’re working in a formal theorem proving system. Anybody who has tried that knows that it’s just not true that the conclusion “startups shoul…
Yes, throwing out first principles thinking just because you failed to think about all the first principles is a major error.
You can often discover missing first principles by going the other direction. IE what companies were successful largely because they took VC money?
If one competitor is taking VC money and another is not, which is more likely to win the market?
This article seems to make the common error of destroying a fence before fully understanding why that fence was built.
Re: Games People Play with Cash Flow (2020)
#63Earlier quoted context omitted.
If the company was seen as a competitors to Yahoo, it looked reasonable to shut it down. The VCs invested in several companies that had a promising direction, then shut down all but one that was growing fastest and grew biggest.
We weren't in competition with Yahoo in the marketplace. But we were competing for the VCs' focus, and that's still competition.
But I dont see how they can force the founders to shut down the company
They maybe gave them a big carrot u didnt know about
Re: Games People Play with Cash Flow (2020)
#64Earlier quoted context omitted.
Yep, that's called Fraud. The only reason its continuing is because the political will to prosecute the rich, especially their big donor friend Elon who they've been giving billions of government subsidies to - investigating him after helping him makes them look bad too, and oh boy did MANY state and federal dollars flow his way.
It's fraud if you never deliver. It's certainly not fraud if you are making progress towards delivering at some nebulous future date, and there was no contractual delivery date in the pre-sale. It's debatable whether it's fraud if the initial pre-sale expressedly included the possibility of non-delivery (i.e. Kickstarter).
> It's certainly not fraud if you are making progress towards delivering at some nebulous future date, and there was no contractual delivery date in the pre-sale.
Only legally, this is basically just fraud with legal disclaimers covering your ass, there's no integrity here and no intention of delivering anything more than the hyperloop.
Re: Games People Play with Cash Flow (2020)
#65This was a great read and definitely fits into something that regularly crosses my mind: “what you say is incorrect but it will take a lot of time and energy to explain why.” The length of this article definitely proves this point!
Just to nitpick (and not detract from the article) this point:
> Once you have less skin in the game, it is easier to make bad decisions. The author argues this is due to a) having a capital buffer to cushion you, and b) having more time to waste.
I actually don’t think this holds true. It’s possible to make bad decisions BECAUSE you have skin in the game. Would you take a 60% bet if the downside was losing your home? Would you do it if the cost was someone else’s home, that person owned an entire city and they’d given you that home for the express purpose of placing those bets?
I saw something like this when the founders at my work promoted someone else to be CEO and, a little while after, took cash out the business (legally) with the express purpose of derisking themselves. They recognised that they weren’t able to take the necessary risks to push the business forward, so appointed a CEO with less skin in the game and reduced their own exposure.
It paid off.
Re: Games People Play with Cash Flow (2020)
#66Earlier quoted context omitted.
It's fraud if you never deliver. It's certainly not fraud if you are making progress towards delivering at some nebulous future date, and there was no contractual delivery date in the pre-sale. It's debatable whether it's fraud if the initial pre-sale expressedly included the possibility of non-delivery (i.e. Kickstarter).
> It's certainly not fraud if you are making progress towards delivering at some nebulous future date, and there was no contractual delivery date in the pre-sale. Only legally, this is basically just fraud with legal disclaimers covering your ass, there's no integrity here and no intention of delivering anything more than the hyperloop.
Legal terms are the codification of a contract between buyer and seller.
Caveat emptor exists because ultimately it's the buyer's decision whether or not to take an offered deal.
If some people were dumb enough to agree to a disadvantageous contract with Tesla... well, world's full of fools.
Re: Games People Play with Cash Flow (2020)
#67Earlier quoted context omitted.
We weren't in competition with Yahoo in the marketplace. But we were competing for the VCs' focus, and that's still competition.
But I dont see how they can force the founders to shut down the company They maybe gave them a big carrot u didnt know about
I am close friends with one of the founders. That friendship predates the company by several years. He did get a payout - I was with him when he pulled it out of his mailbox. A check for 32¢ for all the stock he had.
I don't know the details, but I believe they did it via a redemption rights clause in the investment agreement. https://venturecapitalcareers.com/blog/redemption-rights
Re: Games People Play with Cash Flow (2020)
#68I had a an accounting class in college and cash flow never clicked. I get the examples, especially the restaurant one. But I don’t blame anyone for not being able to play cash flow games.
Simply put, assuming the books will balance eventually, would you rather hold the money or hold the IOU, and for how long? If you hold the money as it changes hand, you can make money off of that (or use it for opening the next store). For a corporation where revenues are consistent, 90 days of payables that you haven't paid anybody yet could be equivalent to tens or hundreds of millions of interest-free loans. Home…
> 90 days of payables that you haven't paid anybody yet could be equivalent to tens or hundreds of millions of interest-free loans
... for the first 90 days, it seems to me. Then you're back to paying them, they're only time shifted. So it strikes me as a way to take a 90 day loan, once. What am I missing?
Re: Games People Play with Cash Flow (2020)
#69This strikes me as an excessively complex argument. Personally, I would zoom way out to work with some more abstract axioms, namely… - Money now is more valuable than the same money later. - The above applies for all parties to varying degrees. - Some operations are money-constrained. - There are ways to move money forwards or backwards in time. Now most businesses are not in a position to financially engineer all th…
The axioms you state must be backed empirically by observing things that happen in the real world. The article explains the real world activities that back those axioms.
Re: Games People Play with Cash Flow (2020)
#70Great read, especially from the perspective of just trying to understand why people overfit certain thinking to certain problems. My startups perspective: I think it’s hard for people to understand the subtlety from all the memes and hearsay. We hear that you need to talk to your users to understand what to build, but I’ve seen this fall flat on its face and lead to extreme confusion, several times now, when you’re n…
> cringy ask to “let us know if you think of any other features you might like” One of the worst examples I've seen is trillion-dollar corporations like Microsoft basically putting new features to the popular vote. You can buy from them a cloud service to the tune of a million dollars a month, but if you notice a bug, they tell you to go try and drum up votes from other users on some public forum. It's insane, to the…
Microsoft has some really perverse incentive structures. Side note, their forums are insane. Most of the "help" is "just run sfc /scannow and then re-install windows" they very clearly do not care to fix actual problems or to help people. They approach problems from a very far distance using a one-sized fits all approach. I think this says a LOT about how ms operates. I do like how Unix is the polar opposite of this. Its very DIY and fix it yourself.