Games people play with cash flow • Hacker News Board

Re: Games people play with cash flow

#21

Post by bob33212 » Wed, Dec 09, 2020, 4:03 PM UTC

impostervt wrote: post #19

jpm_sd wrote: post #2

This is a pretty good article but missed an opportunity to comment in more detail on the 2020 startup/unicorn ecosystem. "Malone’s entire strategy was built around a single fact: that you have to pay up front for cable systems, but then earn back your money via a stable stream of cash for years and years afterwards. Notice how this extreme demand for capital drove Malone to embrace debt, over other sources of capital…

I forget where I read it, but some article described Uber's business model as "sell a dollar for 80 cents". You get a LOT of customers that way, and report huge growth, which brings in investors, and everything is great - until the pyramid scheme collapses.

After a "collapse" you are still left with mindshare and a market. If you increase prices by 30% you'll still be the largest player. Maybe later investors are not making returns but you are not going bankrupt.

Re: Games people play with cash flow

#22

Post by nthj » Wed, Dec 09, 2020, 4:07 PM UTC

hpoe wrote: post #17

valuearb wrote: post #15

Earlier quoted context omitted.

Or you might prefer not to tax corporations at all, only distributions to shareholders. “Profits” or “cash flow” kept in the corporation is reinvested capital. It’s creating jobs and growing businesses, even if it’s kept in an interest bearing bank account.

So I've always been confused by this argument of just start taxing the money that goes to shareholders because the business will reinvest it and create jobs and what not. What keeps the company from reinvesting in the form of company luxury cars for the executives, a company home that they let the CEO live in, and executive compensation. Essentially redirecting the money that would've at least gone to index holders t…

Lodging must meet specific rules, or the fair market value of the lodging must be declared as W2 income.

https://smallbusiness.chron.com/taxability-employerprovided-...

Re: Games people play with cash flow

#23

Post by PKop » Wed, Dec 09, 2020, 4:23 PM UTC

The linked article "How First Principles Thinking Fails" [0] , which states

"..But I think there's a more pernicious form of failure, which occurs when you reason from the wrong set of true principles. It is pernicious because you can’t easily detect the flaws in your reasoning. It is pernicious because all of your base axioms are true...In other words, the only real test you have is against reality. Your conclusion should be useful. It should produce effective action."

reminds me of the quote by Eric Zemmour:

"When principles are in contradiction with society’s survival then the principles are false, for society is the supreme truth." [1]

[0] https://commoncog.com/blog/how-first-principles-thinking-fai...

[1] https://www.theamericanconservative.com/dreher/eric-zemmour-...

Re: Games people play with cash flow

#24

Post by kgwgk » Wed, Dec 09, 2020, 4:24 PM UTC

bob33212 wrote: post #20

Great Article. A lot of people don't understand how important cash flow is. Even Elon pointed out that having factories close to customer is very important for a fast growing company like TSLA because if you grow too fast you'll be putting so many cars on boats before they are paid for that you will have no cash. I disagree with the framing of both articles somewhat. The question should be "What is limiting your grow…

Musk definitely understands the importance of (incoming) cash flows. Being paid upfront for functionality that may or may not be ever available is genius.

Edit: /s

Re: Games people play with cash flow

#25

Post by kgwgk » Wed, Dec 09, 2020, 4:25 PM UTC

bob33212 wrote: post #21

impostervt wrote: post #19

Earlier quoted context omitted.

I forget where I read it, but some article described Uber's business model as "sell a dollar for 80 cents". You get a LOT of customers that way, and report huge growth, which brings in investors, and everything is great - until the pyramid scheme collapses.

After a "collapse" you are still left with mindshare and a market. If you increase prices by 30% you'll still be the largest player. Maybe later investors are not making returns but you are not going bankrupt.

I agree for the mindshare, in some cases at least. Pets.com is still in the minds of many of us. And we will still remember MoviePass in 20 years. But, hey, WeWork still exists!

Re: Games people play with cash flow

#26

Post by nickreese » Wed, Dec 09, 2020, 4:36 PM UTC

Most useful article I've read probably this year.

After selling our last company I was surprised that the acquirer went on an even bigger spending spree just months after acquiring us. As a bootstrapper this blew my mind.

This article helps shine a light on how they pulled it off. They acquired us for the free cashflow the company threw off (uncommon in our industry) and the leveraged that to further their expansion.

I've always looked at accounting as "backwards facing" (meaning it looks at what has happened vs where a company is going) but this article has changed my perspective dramatically.

Re: Games people play with cash flow

#27

Post by herge » Wed, Dec 09, 2020, 4:36 PM UTC

hpoe wrote: post #17

valuearb wrote: post #15

Earlier quoted context omitted.

Or you might prefer not to tax corporations at all, only distributions to shareholders. “Profits” or “cash flow” kept in the corporation is reinvested capital. It’s creating jobs and growing businesses, even if it’s kept in an interest bearing bank account.

So I've always been confused by this argument of just start taxing the money that goes to shareholders because the business will reinvest it and create jobs and what not. What keeps the company from reinvesting in the form of company luxury cars for the executives, a company home that they let the CEO live in, and executive compensation. Essentially redirecting the money that would've at least gone to index holders t…

> company luxury cars for the executives, a company home that they let the CEO live in, and executive compensation

All those should be taxed like the equivalent of income for those executives, which is a higher rate than the corporate tax rate. If these benefits in kind are not taxed as income, then it is fraud.

Re: Games people play with cash flow

#28

Post by mbesto » Wed, Dec 09, 2020, 4:37 PM UTC

jpm_sd wrote: post #2

This is a pretty good article but missed an opportunity to comment in more detail on the 2020 startup/unicorn ecosystem. "Malone’s entire strategy was built around a single fact: that you have to pay up front for cable systems, but then earn back your money via a stable stream of cash for years and years afterwards. Notice how this extreme demand for capital drove Malone to embrace debt, over other sources of capital…

> Why do people believe in it?

Amazon FOMO.

Investors are so butt hurt they didn't believe other investors about Amazon's razor thing margins and now its a 1T company.

I think Uber/DD are VERY different though. I don't see the potential either.

Re: Games people play with cash flow

#29

Post by bluGill » Wed, Dec 09, 2020, 4:50 PM UTC

chris_wot wrote: post #4

Once you have less skin in the game, it is easier to make bad decisions. Surely that is a proposition that might not be entirely correct?

I caught that too. It is false in several ways that destroy the rest of the argument.

First because less skin in the game doesn't make you make bad decisions, it just makes it easier. As such every argument following this point is destroyed by "assume we make good decisions anyway", which is just as valid as "assume we make bad decisions from now on".

Second, because your skin in the game probably doesn't change, instead the total amount of skin in the game gets larger. Most founders (at least in the early days) have invested enough of their own money AND time (more valuable than money to founders!) that they have enough skin in the game as to not find it easier to make bad decisions.

Third, because the investor now has skin in the game and has incentive and leverage to prevent you from making bad decisions. You can be forced to make better decisions because of this.

There are many reasons to not take investors, that is a complex trade off decision. However your less skin in the game is not one of them.

Re: Games people play with cash flow

#30

Post by toast0 » Wed, Dec 09, 2020, 4:57 PM UTC

bob33212 wrote: post #21

impostervt wrote: post #19

Earlier quoted context omitted.

I forget where I read it, but some article described Uber's business model as "sell a dollar for 80 cents". You get a LOT of customers that way, and report huge growth, which brings in investors, and everything is great - until the pyramid scheme collapses.

After a "collapse" you are still left with mindshare and a market. If you increase prices by 30% you'll still be the largest player. Maybe later investors are not making returns but you are not going bankrupt.

The thing is, if you have lots of takers for dollars for 80 cents, that doesn't tell you very much about how many takers you'll have for dollars for $1.04.

If you charge too much for food delivery, you won't have very many customers. How much is too much, and does it leave you a profit is the big question.

maybe they can make it work, but probably not in a lot of markets.