During the Internet bubble at the beginning of the century, I was 15 years into running a small business. An online newsletter was doing an article about small businesses and wanted to interview me.
The young reporter was immersed in the ‘bubble mentality’ of venture capital and the promise of future riches. When I told him the lifeblood of small business is cash, he was confused. “But we are losing money and doing great.” was his reaction, which was true. However, the cash was coming from investors and not the customers. Clearly when the investors stopped investing the bubble burst.
There were unprofitable companies at the time that survived, such as Amazon. However, Amazon was generating cash and investing it in innovative and market-expanding endeavors.
Coming back to today, you may have seen the recent Oxford Center Morning Report:
If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you’ve interacted with seven companies that will collectively lose nearly $14 billion this year. If you use Lime scooters to bop around the city, download Wag to walk your dog, and sign up for Blue Apron to make a meal, that’s three more brands that have never recorded a dime in earnings …”The Morning Report
So does cash or profit matter? In most industries, growing fast takes cash … from customers or investors. If all of the current start-up businesses charged enough to make a profit … would people use them? Ultimately, the cash needs to come from the customers. Their cash is needed to pay back the investors. Alternatively, companies can go public and let the stock market pay back the investors. Then the customers need to pay back the stockholders for their investment. That did not work out great in 2001.
Our customers generate cash. It may not always be as much profit as they hoped to earn, but any loss pales in comparison to the seven companies listed above. In my first full year of business at Change Masters, I was more profitable than IBM, the company I had left behind. My loss that year was small compared to the millions that IBM lost. 🙂
Looking at what startup companies are doing can be a great innovation thought-starter for established companies. Asking how Amazon has changed customer expectations for delivery. Is that relevant to our customers? Asking what using Amazon’s approach to our business might look like? If Amazon provides investments, healthcare, education, taxi rides, or _________ (fill in the blank).
Innovation is asking questions like this and coming up with new ideas to explore. The opportunities are everywhere.