Great article, shared with my team. Nick Kokonas mentioned is also the founder of the booking app Tock.
Games People Play with Cash Flow (2020)
71–80 of 91 posts
Re: Games People Play with Cash Flow (2020)
#72Earlier quoted context omitted.
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?
It's a forever loan for whatever your average payables total to over 90 days (so $10k every month would be a $30k loan). The loan lasts forever or until you close out that line of credit/wind up the company.
Re: Games People Play with Cash Flow (2020)
#73One of the most genius “games” that I’ve seen in real life is Tesla’s offering of a roadster for a huge up front payment to pre-order (~$45,000). They literally created a new product out of thin air that they are untethered to in terms of time or specs (except that it has to be able to accelerate with the force of a jet engine?) to “unlock” millions of dollars of cash flow to fund current operations. (I imagine this…
That's not "genius". Saying "give me money now for something later", making it vague and then not delivering isn't new or genius. It's something which is illegal, and this will be found to be illegal, once there's political will to investigate/prosecute.
It's not illegal. It's product validation.
It would have been a fraud had Musk taken the money and disappeared into the Caribbean sunset. Which he did not.
Re: Games People Play with Cash Flow (2020)
#74Earlier quoted context omitted.
> 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?
It's a forever loan for whatever your average payables total to over 90 days (so $10k every month would be a $30k loan). The loan lasts forever or until you close out that line of credit/wind up the company.
The loan lasts as long as your payables continue to average above $10k/month (or 30k in every rolling 3mo period). Businesses get into trouble when they have a short term disruption and suddenly their cash flow is impacted, then they have no more receivables and have to quickly come up with money to close out the payables. If they are already over leveraged or don't have creditworthiness then they can become insolvent.
Re: Games People Play with Cash Flow (2020)
#75> Once you have less skin in the game, it is easier to make bad decisions.
I beg to differ. I think _this_ article is incorrect because it assumes that above is true. The money that you raised from venture capital is literally oxygen for your company. It is _your_ lifeline as much as it is the VC's skin.
Re: Games People Play with Cash Flow (2020)
#76these are the exact same arguments people make against something like UBI or really any public benefits. "starving people feel motivated to eat food, so they work to make money to buy food. therefore starving people is the correct thing to do because I believe that if we give people food they will be lazy"
I have personally seen a handful of people in tech and tech influencers argue that if people had all their basic necessities met, then they wouldn't be motivated to do anything and they would just play video games all day.
To me, this is a profoundly privileged opinion to have that follows this exact same hyper-idealistic thinking pattern. It comes from these "first principles" that are naive at best. In reality it is more so the bias of the person showing through, we can analyze these systems, look at the data and we won't be coming to these conclusions.
These "first principles" are not based on data or understanding. They are based on emotions, personal experience and biases. ie "I was lazy as college student, therefore all people are lazy.. therefore if people had their needs met, they would also be lazy like I was... therefore depriving people of basic necessities is actually the justified thing to do" I say from my multi-million dollar house in North Dakota with my 300k a year salary and cushy full-time youtube platform.
Re: Games People Play with Cash Flow (2020)
#77This 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 important axiom you forgot:
- The government needs to take your money via tax on profits.
Result: Via fancy accounting, businesses can pretend not to have profits and avoid tax.
Re: Games People Play with Cash Flow (2020)
#78This 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 important axiom you forgot: - The government needs to take your money via tax on profits. Result: Via fancy accounting, businesses can pretend not to have profits and avoid tax.
That isn't the axiom. The axiom is governments need money. They have many different options to get it and often there are ways to give it less of yours.
Re: Games People Play with Cash Flow (2020)
#79Earlier quoted context omitted.
During the dot com boom / crash, I worked at a profitable, VC funded startup. I don't know the legal / financial mechanism by which they did it, but our VCs shut us down six months after the crash. They wanted to put all of their attention into the other company in the portfolio that survived the crash, Yahoo, because their revenue was already far higher than ours could ever be. We were profitable (100s of K per year…
Your experience reminds me of how Google just cancels products, instead of figuring out some way to spin them out. Like maybe pass a product over to Google Ventures. Or set up an incubator. eg I'm certain that Google Inbox could have been a decent modest company on its own. I learned from reading u/patio11 that there's a market for buying and selling small businesses. Is it weird that nothing like that has popped up…
Google can sell projects after or while shutting them down. Make them a large enough offer, and they might bite.
Re: Games People Play with Cash Flow (2020)
#80Great 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.
That is why just in time generally works so well, it reduces costs all down the line. you don't even need to pay in advence, just order in advance with no cancleation clause.