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Revenue is easy, profit is harder

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Re: Revenue is easy, profit is harder

#141

Post by hinkley »

smeej wrote: post #54
hinata08 wrote: post #14

Almost unrelated, but I also learned what was capital efficiency and payback period after playing Monopoly for the first time in years. Long story short, when the properties were eventually sold out, I burned my cash flow to buy more of them to other players, at a high price, when they needed money (it would also allow them to play longer) My logic was that by owning the most properties and by building houses and hot…

There's one monopoly that matters in Monopoly: the houses themselves. The game only has 32 houses. If you get two 3-property monopolies and build four houses on each one, forgoing hotels, you have 24 houses and everyone else is fighting over the remaining 8. If you get max out houses on two 3-property monopolies and a 2-property one, the game is yours regardless of what anyone else has.

That’s also part of the logic of locking down Baltic and Mediterranean. It’s cheaper to get the set, it’s cheaper to get the houses. You’re not going to make a ton of money off them but now at least 25% of the houses in the game are friendly.

I usually did better playing this strategy. Even though winning with houses on park Place is more fun, houses on Mediterranean ave are more certain.

Re: Revenue is easy, profit is harder

#142

Post by bitcoinmoney »

rrrrrrrrrrrryan wrote: post #49
ecpottinger wrote: post #8

Earlier quoted context omitted.

My dad had great ideas for businesses. Yet each one he started failed for him. Why, because he has such unrealistic view on how long the payback period will be. He even founded with a partner what is now a national company, but at the time it did not make a big profit in the first year, so he sold his share of the business. He had "Get rich Quick" fever, and never saw that bussiness rarely become an overnight success…

One of my finance professors mentioned that ~70% of business fail in their first two years, and ~90% of those failures are purely due to a lack of working capital, not due to any fundamental flaw in the business plan. If they kept doing the same thing and just had more money and time, things would have eventually worked out. People start businesses for emotional reasons, not logical ones, and vastly, vastly underesti…

Seems like same numbers from e-myth book. The reasons though are entirely different. Businesses fail because owners don’t get out of technician mode.

Re: Revenue is easy, profit is harder

#143

Post by jschveibinz »

ghiculescu wrote: post #4

I love payback period, it's a great metric. But it's easy to take it too literally. It's meant to be a tool to help you make prioritization decisions ("what if we do this instead of that"), but people often use it as a management report ("we did this; here's the verdict"). Here's a SaaS example: if it costs you $1000 to acquire a customer that pays you $100/month, the PBP is 10. That doesn't sound amazing. But you ha…

This is indeed an excellent strategy, and is perhaps the greatest advancement ever in business models. Nevertheless, there is still a cost-benefit snd cash flow analysis necessary for the amount of that discount. This works easily for software businesses because the gross margins are so high. But that 20% is still money left on the table…

Re: Revenue is easy, profit is harder

#144

Post by AlbertCory »

hinkley wrote: post #139
AlbertCory wrote: post #127

This is an accounting method that's different from the traditional ones. That's not to say it's wrong. It's just interesting. However, "customer acquisition cost" seems to imply that that customer is now "yours" and he'll keep buying without any more spending from you. That assumption is questionable. Maybe he's just on loan to you, and fickle as all hell. Did Uber "acquire" me just because I used them a few times? T…

> However, "customer acquisition cost" seems to imply that that customer is now "yours" I’ve confused a few people this ways in conversation lately and I’m not sure what the solution is, but it’s a case of saying, “even the most optimistic scenario is still very bad”. Keeping someone’s attention is never going to be cheaper than getting it in the first place. The best you can do is spend a maintenance cost to retain…

Thanks. Subscriptions always seemed to me like they were for the business' benefit, not for mine. I'm sure it does make the growth models look really good; you've got this nice, regular stream of money coming in.

However, it does nothing for the customer. I refuse to subscribe to anything, as a rule. Deliver some value, and I'll pay for it when I need it. YMMV.

Re: Revenue is easy, profit is harder

#145

Post by OJFord »

bitcoinmoney wrote: post #142
rrrrrrrrrrrryan wrote: post #49

Earlier quoted context omitted.

One of my finance professors mentioned that ~70% of business fail in their first two years, and ~90% of those failures are purely due to a lack of working capital, not due to any fundamental flaw in the business plan. If they kept doing the same thing and just had more money and time, things would have eventually worked out. People start businesses for emotional reasons, not logical ones, and vastly, vastly underesti…

Seems like same numbers from e-myth book. The reasons though are entirely different. Businesses fail because owners don’t get out of technician mode.

unicorn-hopeful startup buseinesses might fail for that reason; millions of businesses thrive with technician'/whatever relevant to the business owners.

'Bootstrapped' as we now say, 'mom and pop' as many here might say, or just 'small to medium businesses' as we used to say.

Re: Revenue is easy, profit is harder

#146

Post by hinkley »

kazinator wrote: post #40

Revenue is easy only if you ignore survivorship bias. Organizations without revenue perish. Organizations with revenue whose balance sheets don't show a profit don't necessarily perish.

Conversationally, though, you’ve got a bunch of founders sitting around over beers or at a convention, the ones who couldn’t make revenue aren’t there. Revenue is tables stakes for the conversation. You’ve already figured out the first part, but you haven’t figured out the hardest part.

Re: Revenue is easy, profit is harder

#147

Post by bruce511 »

hgomersall wrote: post #104
ecpottinger wrote: post #8

Earlier quoted context omitted.

My dad had great ideas for businesses. Yet each one he started failed for him. Why, because he has such unrealistic view on how long the payback period will be. He even founded with a partner what is now a national company, but at the time it did not make a big profit in the first year, so he sold his share of the business. He had "Get rich Quick" fever, and never saw that bussiness rarely become an overnight success…

So far, my experience has been that business as a start-up is basically about surviving long enough to make a profit. Of course, some ideas are just bad, but I'm convinced loads of start-ups that failed could have been made to work given sufficient time. This doesn't work so well if you take a pile of capital, but if you go for organic growth it is more plausible to survive hand to mouth for a while.

>> Of course, some ideas are just bad, but I'm convinced loads of start-ups that failed could have been made to work given sufficient time.

Are some businesses under capitalised? Sure. Could "loads" be saved with more capital? Well yes, for some definition of "loads".

But annedotally I'd suggest that "most" are just bad ideas. Or perhaps more accurately "incomplete ideas".

To be a success business you need; A) a product B) a market for the product (ie people who would actually dip in their pockets) C) that you can reach via marketing D) that can afford the product.

The vast majority of business ideas have A, a few do B but its very rare that they consider C or D.

As techies we're all about A - build it and they will come. But a successful business needs all 4 - miss one out and you fail.

Re: Revenue is easy, profit is harder

#149

Post by rrrrrrrrrrrryan »

mindwok wrote: post #128
moonchrome wrote: post #124

Earlier quoted context omitted.

> One of my finance professors mentioned that ~70% of business fail in their first two years, and ~90% of those failures are purely due to a lack of working capital, not due to any fundamental flaw in the business plan. Having seen my share of failed businesses - I'm very skeptical of these numbers.

Also skeptical. How would you determine if a business would have succeeded if it had working capital to continue?

Imagine you're starting a restaurant.

When you start a business, your costs basically fall into 3 categories: initial costs (like furniture and stove-tops), fixed costs (like rent and bare-minimum employee wages), and variable costs (like raw input ingredients and additional labor to handle additional business).

As long as your revenue is growing each month, and you're making money on each individual sale (as determined by your variable costs), you'll eventually achieve profitability.

When I say most new businesses have no fundamental flaw in their business plan, I mean that most businesses make money on each sale (e.g. they're not selling burgers for less than the cost of ingredients and the labor to prepare it), which is not that surprising. What is perhaps surprising is that the business is also usually growing each month and they're on a path to eventual profitability, yet they run out of money and fail anyway. When starting a business, you're not convincing investors and debtors that your business model is sound (most are), but rather, that your business model is more sound than most other businesses that they can invest in.

Re: Revenue is easy, profit is harder

#150

Post by sbierwagen »

throwaway292939 wrote: post #109
ghiculescu wrote: post #4

I love payback period, it's a great metric. But it's easy to take it too literally. It's meant to be a tool to help you make prioritization decisions ("what if we do this instead of that"), but people often use it as a management report ("we did this; here's the verdict"). Here's a SaaS example: if it costs you $1000 to acquire a customer that pays you $100/month, the PBP is 10. That doesn't sound amazing. But you ha…

> If you give the customer a 20% discount to pay annually, they're now paying you ~$1000 upfront, for a PBP of 0 This sounds like a huge assumption being made here - as in, this is not as easy as it sounds.

Not every customer will take that option. The PBP is 0 for that customer, not the entire population.
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