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Games People Play with Cash Flow (2020)

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Re: Games People Play with Cash Flow (2020)

#81

Post by bluGill »

SoftTalker wrote: post #68
nick3443 wrote: post #53

Earlier 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?

Take out a 90 day loan for 10k and invest in something, the 30 days latter take out another, the 30 dayn latter pay off the first with results of the first investment while taking out another loan. You never make money but you pay all the bills along the way and slowly build up some hard assets that are paid for.

Re: Games People Play with Cash Flow (2020)

#82

Post by jollofricepeas »

sweeter wrote: post #76

these 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…

In the case of homelessness…

We’ve learned both that if you …

1) provide free housing people will use it

2) fine/jail people for camping on the street and in parks it works as a deterrent

Why not both?

I feel lazy right now but feel free to find your own sources for the points above. The jailing one is from a study done in the Nordic states…last I remember.

Re: Games People Play with Cash Flow (2020)

#83

Post by bluocms »

> 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.

It’s not wrong per se but worded to hide the benefit. Having less skin makes it easier to take higher risk. Which means more “bad” decisions but also with higher potential.

———-

While the prepayment strategy described here is interesting, I'm skeptical about some of the claims and implications. Here's why:

> So how much should they discount it? So let's say we're going to buy steaks. We're going to pay $34 a pound wholesale for dry aged rib-eye, we get net-120 (normally). So I call the guy and say "I'm going to use 400 pounds of your beef a week for the next 4 months, for our menu, which is about about $300,000 of beef, what (would) we get, if we prepay you?" And he was like "what do you mean?" I'm like "I want to write you a cheque tomorrow for all of it, for four months." And he was like, "Well, no one has ever said that." So he called me the next day, he said "$18 a pound" … so … half. Half price.

1. The 50% discount seems implausibly high. Even considering the benefits of prepayment and volume commitment, typical early payment discounts in most industries range from 1-5%, rarely exceeding 10%.

2. The story implies this strategy reduces waste, but the restaurant's beef consumption remains unchanged. The butcher isn't selling more beef overall, just securing a guaranteed sale for a portion of their product.

3. While prepayment does reduce risk for the supplier and improve their cash flow (which justifies some discount), it doesn't fundamentally alter the supply-demand dynamics or the perishable nature of the product.

4. If such extreme discounts were readily available, it suggests either highly inflated initial prices or an incredibly inefficient market. In reality, these price disparities would likely be arbitraged away quickly.

5. The net-120 terms do carry risks (default risk, cash flow pressure, inventory carrying costs), but it's unlikely these factors account for such a large portion of the price.

The principle of prepayment providing mutual benefits is sound, but the magnitude described here is likely overstated or oversimplified. A more realistic scenario might involve a combined discount of 20-25% at most, factoring in prepayment, volume commitment, and possible seasonal factors.

This story, while engaging, highlights the importance of critically evaluating business anecdotes, even from seemingly authoritative sources. The restaurant industry certainly has room for innovation in supply chain and financial practices, but the impacts and benefits may be more nuanced than presented here.

Re: Games People Play with Cash Flow (2020)

#84

Post by lelanthran »

sweeter wrote: post #76

these 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…

> these 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"

Hyperbole much? The mainstream arguments against UBI are nothing like this, because we already have systems in place to give starving people food.

Re: Games People Play with Cash Flow (2020)

#85

Post by graemep »

refurb wrote: post #34
graemep wrote: post #21

There are a few very strange, almost unbelievable, things said about people's understanding of the issues. I can understand that startups and small business may not understand that value comes from cash flow not profits. The value of an asset is the value of the discounted cash flow. This is very basic to the theory finance, so how come banks and wall street did not know it? There has to be more to this. just being a…

I can understand that startups and small business may not understand that value comes from cash flow not profits. This is not correct. You can have positive cash flow over a period but still be losing money. You can also have minimal cash flow but be wildly positive. Cash flow is one component of value, but not the only one.

Financial theory says otherwise.

The value of an asset is the value of its discounted cash flows.

Re: Games People Play with Cash Flow (2020)

#86

Post by jaynate »

devjab wrote: post #26
ftlio wrote: post #6

Great 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…

I think you should be asking about their work, and try to understand their business processes rather than what they want from your software. Then you can spot their pain points and develop features for those. I know this is easier when you’re an internal developer, but the best way we have to spot important features (and the removal of some) is to simply spend a week in the shoes of an employee using the software. Ev…

Agreed, it’s about understanding the problem they have or the thing they are trying to accomplish so you can invent a new or better way to solve it (or eliminate the need for it in the first place).

Re: Games People Play with Cash Flow (2020)

#87

Post by TeMPOraL »

sweeter wrote: post #70
jiggawatts wrote: post #36

Earlier quoted context omitted.

> 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.…

I wonder if Microsoft's "Most Valuable $whatever" program includes a stint at support forums as certification requirement? Because whenever I end up at the help forum, there's always a Microsoft Most Valuable $whatever user present, and they're the one writing the most useless, dumb, and usually irrelevant (template copy-pasting?) responses. It's as if they're doing it to score points outside of the forum.

Re: Games People Play with Cash Flow (2020)

#88

Post by TeMPOraL »

jasode wrote: post #24
EGreg wrote: post #3

Earlier quoted context omitted.

I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars…

>I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, You're looking for something in legal paperwork with Terms & Covenants that for some reason is unstated in public discussions. The real underlying reason your idea of "just take the VCs money and do the opposite of what the invest…

It's interesting how, in this view, founders and VCs compartmentalize. What you call "honest business dealing" between founders and investors usually implies quite dishonest dealing with customers of the startup. The established pattern of growing fast and aiming for an exit already necessitates wringing in growth through dishonest means and, in the best case of a successful exit, eventually leaving the users/customers out to dry while the founders ride off into the sunset with full bank accounts.

Re: Games People Play with Cash Flow (2020)

#89

Post by refurb »

graemep wrote: post #85
refurb wrote: post #34

Earlier quoted context omitted.

I can understand that startups and small business may not understand that value comes from cash flow not profits. This is not correct. You can have positive cash flow over a period but still be losing money. You can also have minimal cash flow but be wildly positive. Cash flow is one component of value, but not the only one.

Financial theory says otherwise. The value of an asset is the value of its discounted cash flows.

That’s a different cash flow than what the article is talking about.

Cash flow and the discounted cash flow model for valuation are different things.

Cash flow over a period is simply cash in-cash out, and having cash on hand for business operations. It ignores profitability. You can be cash flow positive and be running a business that loses money as long as money comes in faster than it leaves. Or if you get an external source of cash like investments.

The discounted cash flow valuation defines cash flow as “investor returns”. So in the case of a business you’d be looking at EBIDTA or net revenue, not cash flow itself.

Or even if you did use cash flow, you’d need to look at cash flow over the life of the investment, not 1 or 2 years. Accounting tricks like deferring expenses or accelerating revenue increases cash flow over the short term, but eventually it gets accounted for.

Selling $1M of product, at a $1.1M cost that you don’t pay until next year is $1M of positive cash flow this year, but nobody is giving that a positive valuation.

Re: Games People Play with Cash Flow (2020)

#90

Post by specialist »

bluGill wrote: post #79
specialist wrote: post #46

Earlier quoted context omitted.

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.

IIRC, one plausible reason for not spinning out products is their dependence on Google's infra. Which, okay, ya, sure. Grant the fledgling a year long grace period to extract itself. Business units are spun out, traded like baseball cards, all the time.

Of course, I'd bet the biggest reason against is "Why bother?" Though if Google had been nurturing spinoffs all this time, maybe it could have salvaged it's brand / mindshare.

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